- Alphabet (NASDAQ:GOOGL) reported first quarter earnings that beat analyst expectations on Monday
- However, the results didn't assuage many of Wall Street's biggest worries around regulation.
- The fees Google pays to partner web sites, known as TAC, continued to increase as a percentage of revenue.
- Shares sank in after-hours trading following the earnings report.
- Follow Alphabet's stock price in real-time here.
Shares of Alphabet, the parent company of Google, slumped more than 2.5% at the opening bell Tuesday after the company reported first quarter earnings that beat expectations on Monday afternoon.
The stock originally popped as high as 4% before quickly reversing course back into the red.
For the first quarter of 2018, the search engine giant posted adjusted earnings of $13.33 per share where analysts had expected $9.30, on revenues (ex-traffic acquisition costs) of $24.9 billion, where analysts had expected $24.5 billion.
"Our ongoing strong revenue growth reflects our momentum globally, up 26% versus the first quarter of 2017 and 23% on a constant currency basis to $31.1 billion," said CFO Ruth Porat in a press release. "We have a clear set of exciting opportunities ahead, and our strong growth enables us to invest in them with confidence."
Shares of Alphabet are flat for 2018 so far as worries about online privacy and regulatory risks weigh on the stock.
"If there is structural risk rising to the leading Internet Platforms, it is likely to come from government," RBC Capital Markets analyst Mark Mahaney said in a note ahead of the earnings report. "And that risk does seem to be rising. Based on numerous discussions with investors, we believe the market may be under-appreciating the regulatory risk facing GOOGL."
This is the first earnings season since the Tax Cuts and Jobs Act was signed into law by President Donald Trump. Like many other companies reporting this quarter, Alphabet said its effective tax rate dropped, from 20% last year to 11% for the first quarter.
The report was also Wall Street's first look into Google's Nest business, the smart-thermostat and other digital home appliances maker that it bought for $3.2 billion in 2014. The unit $112 million in revenue in the first quarter of 2018, it said.
"While fundamental worries coupled by regulatory black clouds continue to be overhangs on the name, we believe 1Q advertising and 'bread and butter' search revenues were healthy and a good barometer of potential strength heading into the rest of 2018," Dan Ives, an analyst at GBH Insights wrote in a note to investors following the earnings announcement on Monday.