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Google parent Alphabet whiffs on sales amid controversies

Google's business is usually a bright spot. Not so much this last quarter.

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Google headquarters in Mountain View, California. 

Stephen Shankland/CNET

Google's facing its most tumultuous period in history. Now its business -- which was always a bright spot amid the scandalous headlines -- is facing issues, too.

The search giant's storied advertising operation, which over the last 20 years has turned Google into one of the most powerful companies on the planet, is showing signs of wear and slowing growth. 

In the first three months of the year, Google's parent, Alphabet, tallied $36.3 billion in sales, missing analyst estimates of $37.3 billion, the company said Monday. Earnings per share were $9.50. Analysts on average had expected $10.61 per share, according to an estimate by Thomson Reuters.

Alphabet also took a $1.7 billion hit in the first quarter, when the European Commission in March fined the search giant for "abusive" advertising practices. The company said the charge affected its profits. Without the fine, Google's profit would've been $11.50 a share.

The company's stock fell 7 percent in after-hours trading.

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The rare miss is an important shift because Google's money-minting ad business has been the cornerstone of the company, allowing it to venture into experimental territory like driverless cars, medical tech and delivery drones. Alphabet on Monday also said those "other bets," Google parlance for those longer-term moon shots, lost more money in the past quarter than they did over the same period last year. Operating losses were $868 million in the the first quarter, versus $571 million the year before.

Google also said sales of its flagship Pixel smartphones, the company's answer to Apple's iPhones and Samsung's Galaxy phones, were down this year compared with the year before. Alphabet CFO Ruth Porat said on a conference call that the lagging sales were partly due to "recent pressures" industrywide in premium smartphones. 

Porat also teased a hardware announcement for May 7, the first day of Google's I/O developer conference in Mountain View, California. Rumors have already swirled about new devices being unveiled at the confab, including a mid-tier phone called the Pixel 3a and a Nest Hub Max smart display.  

YouTube controversies

The disappointing financial results also compound a rocky stretch for Google, as its biggest issues have spilled into public view. Google's employees have protested the company's military contracts, its work in China and the company's handling of sexual assault allegations directed at executives. CEO Sundar Pichai has also been dragged in front of Congress to defend Google over accusation of political bias.

More recently -- in this quarter alone -- Google has faced intense scrutiny over YouTube's inability to police the content on its platform. The video service has been accused of prioritizing growth over the safety of its users. The criticism crescendoed after a shooter livestreamed himself while gunning down worshippers in a mosque last month. YouTube wasn't able to contain the video's spread on its platform, and it was uploaded tens of thousands of times.

During the conference call, Pichai didn't directly address the tragedy, but nodded to YouTube's recent controversies. "YouTube's top priority is responsibility," he said. "There are a lot more improvements which we will be rolling out in the next few weeks, and our work is ongoing."

Google has also faced blowback over its artificial intelligence ethics board, made up of outside experts in the field. The company faced scrutiny for picking Kay Cole James, president of the conservative think tank the Heritage Foundation, who was accused of having anti-trans and anti-immigrant biases. Google eventually disbanded the board after only a week.

Privacy dustups

The company has also been criticized for its Sensorvault database, which police departments across the country have tapped for location data when trying to crack criminal investigations. Congress last week sent a letter to Pichai demanding answers about the database. 

Asked by one analyst about how controversies over Google's data collection policies could impact future products, Pichai mostly sidestepped the question. 

"User expectations around privacy are constantly evolving. And we stretch ourselves to meet them, Pichai said. "And as part of that through this year, we are continuing to do a lot of work just for the overall goal of making sure privacy works for everyone." 

First published 1:06 p.m. PT.
Update, 3:20 p.m. PT: Adds more information from Alphabet's conference call with analysts. 

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