Shares in Google slumped by 6%, wiping $22 billion off the value of the company after it failed to meet analyst expectations, despite growing its profits by 3% in the first quarter.
Although the shares recovered and halved this loss in after-hours trading, the market’s strong reaction was indicative of growing concerns about tech stock valuations after IBM posted disappointing results earlier on Wednesday.
Google’s profits climbed to $3.45 billion, below consensus estimates, and the market reacted with concern about the fact that although Google’s ad volumes surged by 26%, the price paid by advertisers fell by 9%. Added to this, operating expenses climbed from 31% of revenue to 35%, year-on-year, and capital expenditure almost doubled to $2.35 billion, up from $1.2 billion last year, as the company invests in more data warehouses.
However, overall, revenue rose 19% to $15.42 billion, fractionally below expectations, but Google once again underlined the fact it generates huge amounts of cash. The issue it faces now is maintaining growth rates to appease shareholders who have given the company such a lofty valuation.
The tech giant has been on a mini-acquisition spree of late, for example buying Titan Aerospace, a firm that makes drone aircraft, in a bid to expand the reach of global internet connections. It has also recently bought a number of robotic companies.
Earlier in the day, IBM posted its lowest quarterly revenue in five years, which was in part due to an 11% fall in sales in emerging markets