Sizzle/Fizzle

Google’s Slowdown Shows A Digital Ad Fizzle

Google Alphabet

On Wall Street, sometimes growth is not enough. Steady growth must be in the cards, and when it comes to tech companies, accelerating growth is a coveted hallmark for revenue and earnings.

So it is, then, that Alphabet, Google’s parent company, stumbled this past week. Growth was there when it reported earnings results, yes — but not enough growth. Competition is in the cards, and competition is taking a bite of a (formerly?) high flier.

Shares of the company are trading roughly 9 percent lower than they had been before results came this week, which is akin to a vote of less-than-confidence. The culprit was Google’s advertising revenue, the key top line contributor for the company. It grew only 15 percent to a bit more than $30 billion (this is after traffic acquisition costs).

That’s not a bad pace, in absolute terms, but relatively speaking it is a marked slowdown from the 20 percent annual growth seen in past periods. By way of contrast, Amazon and Facebook reported results that were generally positive, and it stands to reason that the strong economy — touted by firms as far-flung as banks and retailers — should be a tailwind for Google.

Management pointed to currency headwinds and at least some reclassifications of YouTube and other offerings.  But then again, the shift to cloud-based initiatives, tied to “other” revenues, is not enough to make up the difference (at a smaller slice of the revenue pie, clocking in at $5.4 billion).

Hardware sales, which are part of the “other” segment that also ties together disparate offerings like the cloud and Play Store, are slowing.  The smartphone industry, marked chiefly by headwinds in the premium segment, is seemingly a challenge for Google and its Pixel phone.

Other bets — that segment that houses Loon and Waymo, for example — continues to be awash in red ink, at nearly $870 million in the period. Losses are widening here, from $571 million last year.

Slower growth the new normal? Maybe, and thus a fizzle in the making.

Sizzle

Cross-Border Payments: The headlines are swelling with news about cross-border payments. To name just a few: central banks are settling cross-border transactions via blockchain. FIS has tapped Visa Connect for cross-border payments. Mastercard’s results show the traction that tech-driven efforts to get money across time zones and currencies is gaining: The firm said cross-border volumes were up in the mid-teen growth rates and will stay that way through the year.

Mergers: Going big is still going strong. FIS and Fiserv said in their respective earnings calls that mergers with, respectively, Worldpay and First Data are still on track to be completed through the end of this year, creating multi-billion dollar digital payments and processing juggernauts.

Delivery Apps: Investors vote with their wallets … and in Latin America, SoftBank is reportedly making a $1 billion investment in Latin American delivery app Rappi. That startup is already in vaunted unicorn territory, having raised $220 million last September for a valuation north of $1 billion.

Fizzle

Passwords: Passé are the passwords, and per one observer — Brett Arsenault, CSO at Microsoft — useless. Hackers have been accessing large numbers of accounts through a tactic known as “password spraying” and the mantra is: hackers don’t break in, they log in.

Credit Card Losses: Are now outpacing losses seen in home loans and auto loans — and though the problem is not yet out of hand with the continuance of a strong U.S. economy, charge-offs and delinquencies bear watching. The four biggest banks in the country had $4 billion in charge-offs last quarter versus only about $650 million from other loan types.

Danske: They heard, but they apparently did not listen. Amid probes into the hundreds of billions of euros that were laundered through Danske’s Estonian branch, the EU finds that the bank had warnings about money laundering and suspicious activity but failed to heed them.

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