Recently, Google’s stock price continued to fall. On October 25th, Google released its third-quarter earnings report, achieving an operating profit of $8.31 billion, while total revenue was $33.141 billion, slightly lower than the expected $34.04 billion. Although the financial report data processing is more eye-catching, but not as the financial experts have been expected.
After the EU’s huge fine, the market value and stock price faced decline. In mid-July, the EU imposed an anti-monopoly fine of 4.34 billion euros on Google. In addition, it was deeply interpreted by various media. Google’s negative news was frequent and stock prices began to fluctuate.
Compared with the Q2 quarterly financial statements, the “revenue growth slowdown, and cost increase” characteristics, Q3 quarterly financial report still has not changed much. Relatively speaking, the growth rate of the ring is more reflective of the company’s recent operating conditions and the level of risk response.
Obviously, in addition to the Asia-Pacific business, Google’s Q3 quarter-on-quarter growth rate is lower than the Q2 quarter, indicating that Google’s short-term operating revenue momentum is showing a trend of fatigue. Looking back at the year-on-year growth rate, it is significantly lower than the Q2 quarterly data. Google’s revenue growth slowed again, and even in other parts of the Americas, business revenues showed a downward trend, with a negative growth.
Google’s business mainly comes from EMEA and the United States, but the US domestic business is less than half of the total revenue, and still depends on the international business. As a result, the policy risk cost will inevitably affect the net profit, and this risk cost goes deep into the bone marrow of Google business and is difficult to change. For example, Google’s withdrawal from the Chinese market eight years ago seriously affected the revenue in the Asia-Pacific region. This year’s huge EU fines caused the Q2 quarter’s net profit to fall. In fact, Google’s net profit growth trend due to these policy risks is uncontrollable.
In the third quarter of 2018, the revenue was mainly from the revenue of Google’s website (71.3% of the company’s revenue), including Google’s webpages and services such as web search, Gmail, YouTube, maps, etc. The provision of this service involves a large number of daily users. Privacy data. Not long ago, there were Google employees who opposed the cooperation between Google and the US military. Later, Li Feifei, who was responsible for the AI business in the media, appealed to Google not to cooperate with the military and will resign at the end of the year, by the New American Security Center (CNAS). Andrew Moore, the co-chair of the Artificial Intelligence Task Force, succeeded in having a close relationship with the US military. However, Google has announced that it not going to renew its contract with US military.
Therefore, if Google cooperates with the US military, it will inevitably further affect its global business. Because the US domestic business does not form an overwhelming advantage in Google’s revenue, Google’s revenue mainly comes from advertising revenues around the world, so the policy risks faced by Google are far greater than the impact of data leakage.
The total cost and expenditure in the third quarter are 25.43 billion US dollars, accounting for 75.4% of the total revenue. If the EU fine is not counted, it is still higher than 75.1% in the second quarter, that is, the unit cost is increasing. The operating margin for the third quarter was 25%, down from 28% in the same period last year.
Google faces a series of specific business risks, mainly reflected in the following aspects:
First, revenues are slowing down and dividends are no longer. After analyzing the underlying advertising business model, in which the main paid click metrics consist of two parts: the website pay-per-click and the online pay-per-click. Among them, the paid clicks on the website are mainly self-operated websites, and the click-through rate is on the rise. However, the growth rate of paid clicks on the website has decreased (15% in the Q2 quarter, 58% in the Q3 quarter, and 10% in the Q3 quarter, respectively). However, the number of online pay-per-click (that is, mainly from partners) is not beautiful, and both the chain and the two major growth indicators have fallen.
Overall, the growth rate of online pay-per-click and the cost of online payment are rising; the number of paid clicks on the website is increasing, but the cost of pay-per-click on the website is also rising. In addition, the traffic acquisition cost in the current quarter increased, up 19.6% year-on-year, and 160 million more than the second quarter. The advertising revenue bonus is no longer.
Second, the source of income is too singular, mainly relying on advertising revenue. The financial report shows that the main income is divided into three major blocks: advertising revenue is 28.954 billion US dollars, “other income” category (including cloud business, hardware sales and Google Play app store, etc.) is 4.64 billion US dollars, and “other bets” category (such as Automated Waymo, healthcare company Verily, Internet service provider Fiber, etc., was $146 million, and advertising revenue accounted for 85.8% of total revenue.
Affected by the EU fine, the EMEA revenue growth in the third quarter was only 2%, which was 1% lower than the previous quarter. This is just the tip of the iceberg where international business is over-reliant on advertising revenue. The EU’s ruling has disrupted Android’s free supply model and ecosystem, which is bound to affect advertising. The charge for Android phones is the appearance of huge pressure on advertising revenue. Apple also authorized fees in the EU.
Third, “squatting” overseas markets (China, India, etc.), but there is nothing to do. In the past three years, Google’s parent company, Alphabet, has invested in five companies in China, and Google’s intention to enter the Chinese market is obvious. However, at present, Alphabet’s investment in China can only be included in the cost, and does not generate net profit for Google’s revenue in the Chinese market, and the new version of the search app developed for the Chinese market is still in the research and development stage and has not been put into the market. In addition, in the Indian market, Google Maps (Google street view) has been rejected by the Indian authorities, and then bet on offline lending companies, trying to use new finance as a breakthrough. From this series of actions and layouts, it can be seen that Google is beginning to realize its own problems and find new estuaries on a global scale.
Systematic risk is the biggest vulnerability in Google’s business value
From the business performance indicators such as total revenue and net profit, Google’s return on business value is still considerable. However, relying entirely on the pure cash cows brought by the advertising business, the development of emerging businesses is less than expected, and Google is insecure. The problem is not only a problem of business structure but also a systemic risk. This is the biggest flaw in Google’s business value.
This risk mainly has the following major performances:
1. Blind innovation and liquidation have become the label of advancing. Innovating, this label has brought a lot of dividends to Google in the early stage, and it has also raised the capital market and people’s expectations for Google. Everything like Google Search, Google Maps, YouTube, Gmail, Android, etc., has brought about user-experienced changes and won the respect of the market. However, in the process of building the moat in the late stage of Google, the ability to innovate was surprising. Like the launch of Google Pixel slate, smartphones, computers, and other electronic products sales are flat, only smart speakers are selling. The successive failures of innovative products such as Google Glass, Google Health, Google Answers, Virtual World Lively, and Google Play Edition Android phones have made their innovations become “progressive”.
2. Google’s core strength barriers are gradually disappearing, and they are threatened in the search business, data and Android systems. With the development of search engine technology, today’s market is not as easy to monopolize as it was ten years ago, and more and more products are available for users.
Another major reason for the current sharp fall in stock prices is that investors will consider Amazon’s threat to Google’s core advertising business. According to market forecasts, Amazon’s revenue will grow at a rate of 50%. In the US, about 35 million smart home devices, Amazon’s share is as high as 70%, and Google’s only 23%. And cloud computing business, Google is also far behind Amazon. After the arrival of the 5G era, the smart port will cause changes in the new market structure.
The only trump card in the valley singer is Android, but in fact, Android apps do not have to be bound to Google software. Moreover, whether it is the European Union, China in the Asian market, India, etc., national security protection is needed. As long as the country has relatively alternative technologies, Google’s data collection advantages will be limited. At present, Google is still unable to benefit from Chinese Android phones.
3. Social entertainment has always been Google’s black hole. For example, the Wall Street Journal has revealed a flaw in Google that will expose the personal data of about 500,000 Google+ users. Google’s data advantage is not invincible. Not long ago, investors sued Google, saying it did not disclose Google+ privacy loopholes. Google also plans to close Google+ social networks in August 2019, which means that Google’s attempts at social networks have failed.
In fact, not only Google+ lost, Google Google Buzz, Orkut, Google Video, Google NexusQ and other products have failed, and are constantly eroding public confidence in Google.
Google alone cannot rely on advertising business to build strong commercial barriers, and the moat that it is trying to build is gradually being eaten by companies such as Amazon.
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