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When is making $20bn in three months not enough? When your name is Google

Wall Street hammers Chocolate Factory for not hitting targets

Google parent company Alphabet is feeling the heat after it failed to reach earnings targets this past quarter.

The Chocolate Factory took a beating on Wall Street after it reported non-GAAP earnings of $7.50 per share in its 2016 Q1 period, which ended in March. Analysts had expected earnings of at least 7.96 per share. Here's the summary:

  • Revenues of $20.26bn were up 17 per cent from $17.26bn a year ago.
  • Net income of $4.2bn was up 17 per cent from last year's $3.5bn.
  • The Google business itself reported revenues of $20.1bn and operating income of $6.3bn.
  • The 'other bets' category lost $802m on operating income of $166m. This was blamed largely on the cost of laying cable for the Google Fiber service.
  • Aggregate paid clicks were up 29 per cent, with paid clicks on Google websites up 38 per cent. Cost per click on the external Google network member sites was down 8 per cent while cost per click on Google websites was down 12 per cent and on aggregate down 9 per cent.

The core Google business remains Alphabet's cash cow, accounting for virtually all of the quarter's revenues and the entirety of its income. Of that $20bn haul, $18bn came from advertising revenues and $14.3bn from Google's own websites. This is where the drop in cost-per-click could be of concern. With each ad click returning less money, Google will face pressure to increase clicks to compensate.

"We're thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long-term growth," offered Alphabet CFO Ruth Porat.

Speaking of new technologies, Google CEO Sundar Pichai offered these words to analysts: "In the long-run we will evolve computing from a mobile-first to an AI-first world."

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Investors, however, were not so so optimistic. After the quarterly figures were posted and word spread that Alphabet was falling well short of the $7.96 EPS target, the company's stock fell by as much as 6.5 per cent in after-hours trading. ®

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