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Google Parent Alphabet Sinks on 3rd-Quarter Earnings Miss

On a day where the Standard & Poor's 500 Index set a new all-time high following increased trade optimism between the U.S. and China, shares of Google parent Alphabet Inc. (NASDAQ:GOOG)(NASDAQ:GOOGL) tumbled around 3% in aftermarket trading on Monday.


For the quarter ending Sept. 30, the Mountain View, California-based company reported net income of $7.068 billion, or $10.12 in earnings per share, compared with net income of $9.192 billion, or $13.06 in earnings per share, in the prior-year quarter.


Company accelerates operating expenses during the quarter, lowering net incomes

Alphabet Chief Financial Officer Ruth Porat said during the earnings call that while revenues increased over 20% year over year, driven by strong site sales from mobile search, YouTube and desktop search, net income declined during the quarter as the company continues accelerating operating expenses. Porat detailed that content acquisition costs increased 14% year over year, driven by the continued shift from desktop search to mobile search, which carries higher traffic acquisition costs. Head count growth, especially in research, development and sales, also contributed to the increase in operating expenses.


Alphabet reported other expenses of $549 million, driven by a net unrealized loss on equity investments of $1.528 billion during the quarter.

Stock falls on earnings miss

Class A shares of Alphabet traded at a post-market low of $1,249.42, down 3.14% from the close of $1,289.99. Likewise, Class C shares of Alphabet traded at a post-market low of $1,246.00, down 3.41% from the close of $1,290.00.


GuruFocus ranks Alphabet's financial strength 9 out of 10 on several positive investing signs, which include robust interest coverage, a strong Altman Z-score of 10.51 and debt ratios that outperform over 70% of global competitors.


Gurus with positions in Alphabet include PRIMECAP Management (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).


Disclosure: No positions.

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This article first appeared on GuruFocus.