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Google looks for new growth business as results disappoint

The share price of Alphabet, Google’s parent company, fell by 4% this week after sales growth was lower than the market had expected.

Is this the end of a rally that has seen Alphabet shares rise by 17% in the last three months? The share price of Google’s parent company slipped by 4% this week after its latest quarterly figures, says Richard Waters for the Financial Times. Sales grew by only 18% year-on-year, lower than the growth the market had anticipated. This “was caused almost entirely by a shortfall in Google’s non-advertising businesses”, which now comprise a fifth of the group total.

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Investors will be “disappointed” by the results, says Gina Chon on Breakingviews. Still, they should welcome the “increased transparency” that comes with Alphabet’s decision to break down revenue and profits by its various divisions. It shows that some parts of Alphabet are still growing extremely quickly, with revenue from YouTube advertisements and the cloud computing division jumping by more than 30% and nearly 53% respectively. 

While new CEO Sundar Pichai will still have to “accelerate growth and navigate through regulatory challenges”, shareholders should be reassured by the fact that he is “open to more honest grading”.

But greater disclosure also raises an awkward question, says Lex in the Financial Times. Is there a business in the portfolio apart from advertising that can drive future growth? YouTube TV “is far from becoming the next Netflix”, while self-driving car group Waymo and other ideas “keep sucking up money and producing little”. “If Google has another revenue model waiting in the wings it is not saying.”

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