Alphabet beats earnings forecast, but costs weigh on shares

Alphabet beats earnings forecast, but costs weigh on shares

Google parent company Alphabet has posted its fourth quarter 2018 and full fiscal year earnings, noting continued growth for the company and beating out many analysts' estimates.

Overall, Alphabet revenue was $136.8 billion for 2018, up 23% year-over-year, with $39.3 billion quarterly revenue, up 22%, the company said.

Traffic acquisition costs or TAC were $7.4B (consensus: $7.62B; up from $6.58B in Q3) or 23% of revenue, down a percentage point from last year's quarter.

"With great opportunities ahead, we continue to make focused investments in the talent and infrastructure needed to bring exceptional products and experiences to our users, advertisers and partners around the globe", said Alphabet chief financial officer Ruth Porat.

Google revenues from its "other" category, which includes what it pulls in from cloud services and hardware, climbed more than 30 percent to $6.5 billion in the fourth quarter.

While Alphabet relies on Google's advertising business to generate profits, YouTube and cloud computing are costlier operations than its traditional desktop businesses.

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Expenses rose to $31 billion compared with $24.6 billion in the same period a year ago.

The valuation doesn't reflect Alphabet's net cash of $105 billion, or about $150 a share, and includes the losses in the company's nascent "other bets" businesses such as Waymo, the leader in autonomous-driving technology. Alphabet's results in that division were higher than the $7.62 billion Wall Street projected.

The higher-than-expected cost of business for Alphabet seemed to worry investors, as the company's stock was down 2.84 per cent at $1,100.64 apiece in after-hours trading. The number of clicks on ads that Google ran on its own services surged 66 percent in the fourth quarter, versus the 2017 holiday period. YouTube numbers are buried inside Google, while cloud and hardware results are part of Google's Other revenues line.

The other segment of interest in Alphabet's ledger is "other bets", which is where the company lumps all non-Google business. Google remains behind rival Amazon.com Inc in the cloud, said Cordwell.

The loss previous year related to a one-time charge from new United States tax rules, while earnings since then have benefited from new rules about valuing Alphabet's dozens of investments in external startups. This year's earnings per share are expected to rise a modest 7% due in part to a comparison with 2018, which had almost $6 a share in equity gains. Among the more damaging of those was its work on a China-specific search engine which ultimately caused questions to be raised by the U.S. government.

Cloud engineers and sales professionals also made up the bulk of the 4,000 employees it hired during the quarter, Porat said.

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