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Earnings

Alphabet earnings: A rocky road ahead

Alphabet earnings: A rocky road ahead
Alphabet
  • Q1 revenue: $41.2 billion (+13% YoY, -11% QoQ, vs. $40.3 billion expected)
  • Q1 earnings: $6.83 billion (+2.7% YoY, +/-36% QoQ, below expectations)
  • Q2 guidance: Alphabet is "optimistic" about the long-term growth of the business, but the second quarter will be "a difficult one," according to CFO Ruth Porat.

The big number: With the pandemic shutting down industries around the world, the writing has been on the wall that Google was likely going to take a hit in its advertising revenue — far and away its biggest business — as far fewer people are advertising right now. Even still, Alphabet managed to beat revenue expectations by nearly $1 billion. Google's advertising revenue was up over 10% to $33.7 billion over the $30.6 billion it posted in the same period last year. Alphabet's CFO Ruth Porat suggested on the call with analysts that much of the advertising revenue for the quarter came before the West went into lockdown near the end of March, when attentions turned to "less commercial" interests — presumably all of us Googling COVID-19 symptoms.

People are talking: "Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues," Porat said in a statement. "We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities."

Opportunities: Alphabet isn't entirely about advertising. There have been a few other promising, if relatively small, areas of growth in recent quarters, including Google's hardware division and its cloud services businesses. It started breaking out its Google Cloud revenue at the end of 2019, and it posted $2.78 billion in revenue for the quarter, a massive 52% jump over the $1.825 billion it posted in the quarter a year earlier. As more companies consider the value of flexible, cloud-based architectures, it's likely this business will continue to contribute to Alphabet's bottom line. CEO Sundar Pichai said the company would be "recalibrating" its investment focus in data centers given the pandemic.

Google's whole "other revenues" line, which includes sales of Pixel phones, Nest smart devices and other hardware products, as well as cloud, also jumped over last year, contributing $4.44 billion — though if you take out the revenue from cloud services, the segment actually shrunk by about 8%. It seems like fewer people want new phones or smart-home products when they're stuck at home, and Pichai said that fewer devices had been activated in the quarter.

Threats: Google is likely going to be seen as the canary in the coal mine for the advertising industry during the pandemic; its main competitor, Facebook, reports Wednesday. For now, it seems that Google managed to weather the start of the pandemic with revenue that came in before things really went south. The company recently cut its own marketing budgets, with Pichai hinting at hiring freezes on the call as well. Advertising revenue is Alphabet's cash cow — what will it do if no one wants to buy ads?

"There's still a great deal of uncertainty about the path to recovery," Pichai said on the company's call with investors. "Q1 was clearly the tale of two quarters."

The power struggle: Beyond the softness in the advertising industry, Alphabet has another millstone around its neck: everything other than Google. All of its other companies — which it groups together in its earnings as "Other Bets," and includes things like Waymo, Loon, Verily, X and Wing — may one day produce technology that'll revolutionize the world like Google has, but for now, are primarily a massive cash pit for Alphabet. Other Bets generated $135 million in revenue for the quarter (a 20% drop over a year ago), at a loss of $1.12 billion for the quarter. That's about 30% more than it lost in the same quarter a year ago. If Google is facing lean times ahead in its advertising business, how much money is Alphabet going to continue to want to throw into its Other Bets?
Power

The video game industry is bracing for its Netflix and Spotify moment

Subscription gaming promises to upend gaming. The jury's out on whether that's a good thing.

It's not clear what might fall through the cracks if most of the biggest game studios transition away from selling individual games and instead embrace a mix of free-to-play and subscription bundling.

Image: Christopher T. Fong/Protocol

Subscription services are coming for the game industry, and the shift could shake up the largest and most lucrative entertainment sector in the world. These services started as small, closed offerings typically available on only a handful of hardware platforms. Now, they're expanding to mobile phones and smart TVs, and promising to radically change the economics of how games are funded, developed and distributed.

Of the biggest companies in gaming today, Amazon, Apple, Electronic Arts, Google, Microsoft, Nintendo, Nvidia, Sony and Ubisoft all operate some form of game subscription. Far and away the most ambitious of them is Microsoft's Xbox Game Pass, featuring more than 100 games for $9.99 a month and including even brand-new titles the day they release. As of January, Game Pass had more than 18 million subscribers, and Microsoft's aggressive investment in a subscription future has become a catalyst for an industrywide reckoning on the likelihood and viability of such a model becoming standard.

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Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Over the last year, financial institutions have experienced unprecedented demand from their customers for exposure to cryptocurrency, and we've seen an inflow of institutional dollars driving bitcoin and other cryptocurrencies to record prices. Some banks have already launched cryptocurrency programs, but many more are evaluating the market.

That's why we've created the Crypto Maturity Model: an iterative roadmap for cryptocurrency product rollout, enabling financial institutions to evaluate market opportunities while addressing compliance requirements.

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Caitlin Barnett, Chainanalysis
Caitlin’s legal and compliance experience encompasses both cryptocurrency and traditional finance. As Director of Regulation and Compliance at Chainalysis, she helps leading financial institutions strategize and build compliance programs in order to adopt cryptocurrencies and offer new products to their customers. In addition, Caitlin helps facilitate dialogue with regulators and the industry on key policy issues within the cryptocurrency industry.
Protocol | Policy

Lina Khan wants to hear from you

The new FTC chair is trying to get herself, and the sometimes timid tech-regulating agency she oversees, up to speed while she still can.

Lina Khan is trying to push the FTC to corral tech companies

Photo: Graeme Jennings/AFP via Getty Images

"When you're in D.C., it's very easy to lose connection with the very real issues that people are facing," said Lina Khan, the FTC's new chair.

Khan made her debut as chair before the press on Wednesday, showing up to a media event carrying an old maroon book from the agency's library and calling herself a "huge nerd" on FTC history. She launched into explaining how much she enjoys the open commission meetings she's pioneered since taking over in June. That's especially true of the marathon public comment sessions that have wrapped up each of the two meetings so far.

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Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Protocol | Fintech

Beyond Robinhood: Stock exchange rebates are under scrutiny too

Some critics have compared the way exchanges attract orders from customers to the payment for order flow system that has enriched retail brokers.

The New York Stock Exchange is now owned by the Intercontinental Exchange.

Photo: Aditya Vyas/Unsplash

As questions pile up about how powerful and little-known Wall Street entities rake in profits from stock trading, the exchanges that handle vast portions of everyday trading are being scrutinized for how they make money, too.

One mechanism in particular — exchange rebates, or payments from the exchanges for getting certain trades routed to them — has raised concerns with regulators and members of Congress.

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Tomio Geron

Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.

Protocol | Workplace

The Activision Blizzard lawsuit has opened the floodgates

An employee walkout, a tumbling stock price and damning new reports of misconduct.

Activision Blizzard is being sued for widespread sexism, harassment and discrimination.

Photo: Bloomberg/Getty Images

Activision Blizzard is in crisis mode. The World of Warcraft publisher was the subject of a shocking lawsuit filed by California's Department of Fair Employment and Housing last week over claims of widespread sexism, harassment and discrimination against female employees. The resulting fallout has only intensified by the day, culminating in a 500-person walkout at the headquarters of Blizzard Entertainment in Irvine on Wednesday.

The company's stock price has tumbled nearly 10% this week, and CEO Bobby Kotick acknowledged in a message to employees Tuesday that Activision Blizzard's initial response was "tone deaf." Meanwhile, there has been a continuous stream of new reports unearthing horrendous misconduct as more and more former and current employees speak out about the working conditions and alleged rampant misogyny at one of the video game industry's largest and most powerful employers.

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Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
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