Google’s revenues are declining; but Alphabet (NASDAQ: GOOG) is still a superb stock, Mr. Market overprices. However, Alphabet’s stock price is dropping because its revenue growth has stopped.
To explain, Alphabet’s revenues fell by $3.682 during 1st Quarter 2019. Specifically, Alphabet (NASDAQ: GOOGL) reports revenues of $36.339 billion on 31 March 2019, and $32.657 billion on 5 May 2019.
Moreover, this was the third quarter of revenue shrinkage at Alphabet. In fact, Alphabet reported a record quarterly revenue of $39.276 billion on 31 December 2019.
Moreover, Stockrow gave Alphabet a 0% revenue growth rate for 2nd Quarter 2019 on 7 May 2019. In fact, revenue growth at Alphabet was down from 16.67% in 1st Quarter 2019.
Why has Alphabet’s Revenue Growth Stalled?
Analysts blame Alphabet’s lack of revenue growth on a slowing in digital advertising, CNBC reports. In particular, a lack of clicks growth on is limiting revenues, Alphabet Chief Financial Officer Ruth Porat claims.
Specifically, Alphabet’s Google advertising revenue growth fell from 19.86% in 4th Quarter 2018 to 15.31% in 1st Quarter 2019, CNBC estimates. Moreover, Google revenue growth fell from 20.32% in 3rd Quarter 2018, and 23.88% in 2nd Quarter 2018.
Is Alphabet getting Amazoned?
Therefore, it appears the aggressive push Amazon’s (NASDAQ: AMZN) is making into advertising is hurting Alphabet.
Unfortunately, Amazon keeps its ad revenue secret. However, Geekwire estimates Amazon generated $4.61 billion from US digital advertising in 2018.
Under those circumstances, Amazon is the number three purveyor of online ads with 4.15% of the market. Notably, CNBC claims some brands are moving 40% to 50% of their Google Ad search budgets to Amazon.
I think Alphabet’s revenue drop proves CNBC’s claim that some advertising executives think big companies are moving hundreds of millions of dollars worth of ads from Google to Amazon. Unfortunately, it is difficult to determine which advertisers are switching.
However, Facebook (NASDAQ: FB) is still America’s second largest purveyor of digital ads with 22.7% of the market, CNBC claims. Thus Facebook could be a greater threat to Alphabet than Amazon.
Are Consumer Brands Dumping Google Ads?
I believe consumer brands are moving ads to Amazon because the Everything Store is where Americans do their shopping.
In particular, many consumers look on Amazon first. In fact, 49% of product searches begin on Amazon, CNBC estimates.
Moreover it appears Alphabet’s retail initiatives like Google Express delivery are not keeping up with Amazon. For example, almost everybody knows what Amazon and Amazon Prime are but only a few people are aware Google Express exists.
Thus, Alphabet needs to improve its retail game and fast, because I think shopping is the future of search. Fortunately, Google could greatly expand its shopping options by partnering with retail giants like Kroger (NYSE: KR) and Walmart (NYSE: WMT).
Can Kroger, Alphabet, Lyft, and Instacart Stop Amazon?
Kroger, in particular, is investing heavily in Ocado Group PLC’s (LSE: OCDO) robotic fulfillment centers. To explain, Kroger is trying to counter Amazon’s aggressive move into the grocery business. Consequently, an alliance between Alphabet and Kroger will be a smart move.
For instance, adding Kroger supermarkets and Instacart delivery to Google Express could make that service widely used. Another option for Alphabet is to combine Google Express with Waymo One.
To explain, Waymo One is Alphabet’s ridesharing experiment with autonomous vehicles. Notably, Waymo One offers shopping trips to Walmart for customers. Thus, Alphabet could add a Waymo One shopping option to Google Express. In addition, Alphabet could use Waymo One’s Chrysler Pacifica vans to deliver Google Express orders.
In addition, Waymo One is now partnering with Lyft (NASDAQ: LFYT) in Phoenix, TechCrunch reports. To explain, Lyft and Waymo will scale autonomous ridesharing in Arizona. Obviously, the two companies could do the same for Google Express delivery.
Plus, Alphabet is expanding its Android Automotive operating system for vehicles which could power delivery options. Notably, Fiat Chrysler (NYSE: FCAU) plans to install Android Automotive in all its vehicles by 2022.
How Much Money is Alphabet Making?
Therefore, Alphabet is trying to grow its revenues by investing in new partners. In particular, I think Android Automotive could be a huge moneymaker.
Meanwhile, Alphabet is raking in a lot of cash. For instance, Alphabet reports a gross profit of $20.337 billion, an operating income of $8.203 billion, and a net income of $3.395 billion for 1st Quarter 2019.
Moreover, Alphabet records an operating cash flow of $10.332 billion for 1st Quarter 2019. However, Alphabet reports no free cash flow for the quarter which indicates a sharp drop in cash flow.
Alphabet Has Less Cash
In addition, Alphabet reported no cash and equivalents on 5 May 2019. In contrast, Google reported $19.148 billion in cash and equivalents on 31 March 2019.
However, Alphabet $88.306 billion in short-term investments on 5 May 2019, Stockrow reports. Conversely, Alphabet recorded $93.340 billion in short-term investments on 31 March 2019. Note these numbers may change because Stockrow removed those numbers as of 9 May 2019.
Under these circumstances, I think Alphabet is using its cash to cover operating costs. Thus, Alphabet will need to make major changes to its operations if it wants to remain profitable. An obvious way for Alphabet to get more cash is to sell or spin Waymo off.
Should Alphabet Sell Waymo?
Uniquely, Automakers like Ford (NYSE: F) need self-driving vehicle technology and they are sitting on huge piles of cash. For instance, Ford had $16.04 billion in short-term investments on 5 May 2019.
Moreover, Ford is investing $500 million in the electric vehicle company Rivian, a press release reveals. In detail, Rivian is developing an all-electric pickup truck. Plus Ford plans to use Rivian’s flexible skateboard electric platform in a future vehicle.
Thus, Alphabet can raise money by selling Waymo or its technology. In addition, Alphabet could exchange Waymo’s technology for an investment from an automaker. For example, an electric Ford Transit van that uses Waymo’s self-driving technology.
Why Alphabet Should Pay a Dividend
Finally, I think Alphabet (NASDAQ: GOOGL) should pay a dividend because of its ridiculous share prices. For instance, $1,167.97 on 9 May 2019.
However, I do not think Alphabet management will offer a dividend until shares drop below $500. I believe if that happens, Alphabet will have to bite the bullet; like Apple (NASDAQ: AAPL) did and offer a dividend.
Consequently, I think investors should stay away from Alphabet right now. In fact, I believe Google’s stock price could drop dramatically if it experience another bad quarter.
However, if Alphabet offers a dividend, income investors should investigate Google. Until then, value investors should stay away from Alphabet (NASDAQ: GOOG).