The stock price of Google's parent Alphabet closed down 5.46% on Friday, after the conglomerate's earnings missed analysts' expectations.
At $737.42, it was the biggest one-day drop for the company's shares since 2012.
The company posted lower-than-expected profits and revenue as the company spent more on building traffic for its mobile advertising business. A strong dollar in the quarter also hit earnings. On Thursday, when the company posted its results, the company's stock had tumbled 6% in late trading.
Alphabet's consolidated revenue rose to $20.26 billion from $17.26 billion, slightly below the $20.37 billion analyst consensus, according to Thomson Reuters I/B/E/S. Non-GAAP earnings per share of $7.50, excluding one-time items, missed analysts' expectations of $7.97.
Chief Financial Officer Ruth Porat said on a conference call with investors that payments to other web sites, known as traffic acquisition costs (TAC), totalled $3.8 billion and accounted for 21% of advertising revenues. The percentage of ad revenues spent on TAC grew 13% year-over-year.
Porat said spending on traffic acquisition is expected to keep rising as the shift to mobile continues - pressuring the company's traditionally robust margins on its advertising business.
"I think investors expecting stable margins are probably being overly optimistic. But that said you can have diminishing margins and still have a great business and an incredibly lucrative one," said Pivotal Research Group analyst Brian Wieser.
Google's advertising revenue increased 16.2% to $18.02 billion, while the number of ads, or paid clicks, rose 29%, the company said.
S&P technology index takes a hit
The S&P technology sector dropped 1.9%, its worst decline since early February, with Facebook down 2.5% and Intel falling 1.03%.
Microsoft dropped 7.17%, contributing the biggest drag to the S&P 500, and Google-parent Alphabet lost 5.46% as investors punished both companies for missing profit and revenue estimates.
