What's going on?

Alphabet Inc., the parent company of search giant Google, saw its stock fall about 3% on Thursday after it said it didn�t make as much profit in its most recent quarter as Wall Street expected.

What does this mean?

In some respects, it was a strong quarter for Alphabet, as advertising revenue from its core business, Google, grew more than expected. However, its profits were hit by an unexpected tax loss, which surprised investors. Also, its �Other Bets,� like those that focus on autonomous driving�or artificial intelligence (AI), lost significantly more money than in the previous few quarters, which suggests Alphabet is allowing expenses in those divisions to rise (i.e. investing in them).

Why should I care?

For the stock: The shift to mobile poses a threat and an opportunity for Alphabet. (tweet this)

Google charges more per click for web-based than mobile-based ads and, therefore, as mobile search has grown relative to web search, Google�s revenue per click has declined. While this creates some uncertainty, it also creates an opportunity in terms of volume (think: how many more searches you now conduct versus the pre-smartphone era) � and it has helped Google�s total ad revenue to continue to grow. The extent to which Alphabet can continue to ride this wave will likely be important to its share price over the coming years.


The bigger picture: Tech companies must innovate to stay relevant � and valuable.

Alphabet knows it is going to have to innovate to remain one of the world�s most valuable companies: we are not going to be typing search terms into our phones in ten years’ time; we could be speaking to an AI-driven assistant, or doing something else that we have yet to invent. That�s why Alphabet is pumping billions into developing new technologies. For the immediate future, it will continue to be judged largely on its advertising performance � but ultimately the execution of its �Other Bets� will determine Alphabet�s value.