Google has grown in the public’s imagination through products such as its Waymo self-driving vehicles, package-delivering drones, Pixel smartphones and Chrome Web browser. But at day’s end, the business runs on advertising.
That’s why investors punished the Silicon Valley giant for showing cracks in its ad sales for this year’s first quarter. Shares of Google’s parent, Alphabet, tumbled by more than 7 percent in after-hours trading Monday after the firm said growth in advertising sales slowed to 15 percent from a year earlier, compared with 20 percent in the prior quarter and 24 percent a year ago.
It marked the slowest ad sales growth in more than three years, suggesting marketers are sending their dollars elsewhere. Google is the largest player in digital advertising, with a 31 percent market share, followed by Facebook at 20 percent, according to research firm eMarketer.
The company’s sales also disappointed. Revenue of $36.3 billion in the three months ended March 31 was about $1 billion less than the average estimate from analysts. Facebook, Twitter and Amazon, competitors for marketing dollars, this month all posted sales gains that bested or met analyst expectations.
Google continues to find new ways to make its services essential and, even, unavoidable for any consumer with access to a computer or mobile phone, and along with that opportunities for advertisers to hawk their wares. Its GPS-reliant maps business has begun taking in ad dollars for restaurants and other services, and it has pushed video-streaming service YouTube onto an expanding array of new devices.
At the same time, there has been increased scrutiny of tech firms over the data collection and distribution essential to serving up and soliciting online advertising. The companies argue that more data helps make advertising more personalized and relevant, though some watchdog groups say there should be limits placed on how much information marketers should have access to.
Google didn’t provide much detail on why its advertising growth is slowing.
A $1.7 billion fine in the European Union for “abusive” advertising tactics weighed on Google’s profits, but the company telegraphed it to Wall Street. Facebook, for its part, last week surprised the market when it budgeted $3 billion in anticipation of government fines, but investors nonetheless sent its shares higher.
Google has come under pressure in Washington, as well. Chief executive Sundar Pichai was summoned before Congress late last year to address questions of political bias and employees fought back against potential military contracts.
Employees have also pushed for changes after reports emerged of large payouts to executives accused of sexual harassment, including staging a walkout at Google campuses worldwide last winter. On Monday, organizers of the walkout urged colleagues to call their members in Congress to lobby for an end to forced arbitration.
The share of Google’s sales that come from advertising slipped to 84.5 percent from 85.5 percent a year earlier. The search giant’s “Other Bets,” which include balloons to expand Internet connectivity and driverless cars, are still a drop in the bucket for overall revenue and remain a drag on profits. Google said it took an $868 million operating loss in the quarter for those projects, compared with $571 million a year earlier.
Chief Financial Officer Ruth Porat sought to defuse some concerns by pointing to unfavorable currency conditions overseas as the dollar remains relatively strong. “We expect to continue to see head winds to our revenues and operating income again in the second quarter,” because of currency impacts, she said on a call with analysts.
Shares of the Mountain View, Calif.-based company had risen 24 percent this year.