March 24, 2019

Alphabet's fourth-quarter revenue, profit beat estimates

05 February 2019, 01:23 | Hattie Nash

Google CEO Sundar Pichai said that providing accurate and trusted information at the scale the Internet has reached is an extremely complex challenge

Google CEO Sundar Pichai said that providing accurate and trusted information at the scale the Internet has reached is an extremely complex challenge

Analysts had expected a profit of $10.86 a share, or $11.02 adjusted for tax law changes. Revenue from its other properties raked in $27.022 billion.

For all that, investors apparently expected a little more operating income, which at $8.2 billion came in a bit short of the $8.6 billion consensus.

Alphabet shares have climbed 9 percent since the beginning of the year, while the Standard & Poor's 500 index has risen roughly 9 percent. Analysts attributed the decline to Alphabet's increased investment in its cloud business, YouTube and other areas it hopes to grow. Google is well behind rivals like Amazon Web Services and Microsoft in the cloud infrastructure market, and at the moment it is spending more than them per quarter on capital expenditures to support that business.

Alphabet's fourth-quarter revenue, profit beat estimates
Alphabet's fourth-quarter revenue, profit beat estimates

The category accounted for $154 million in revenue for the quarter, up from $131 million a year ago.

"In 2018 we delivered strong revenue growth, up 23% year over year to $136.8 billion, and up 22% for the fourth quarter to $39.3 billion", said Ruth Porat, Chief Financial Officer of Alphabet. Refinitiv also estimated revenue at $38.93 billion compared to the actual $39.27 billion. "Our product offerings are ready and differentiated, so want to invest in scale and go-to-market".

Online commerce grew quickly in the final quarter of 2018, helping Google's ad business.

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Alphabet reported capital expenditures of more than $7 billion for Q4, easily surpassing the $5.63 billion in capex it planned to spend during the quarter.

Costs were also pushed higher by hiring, mostly for the cloud business, she added during a conference call with analysts. It's also seeing an "uptick" in $100 million contracts, Porat said.

Yet, the biggest issue for Google right now might not be regulatory risks so much as its own ongoing effort to diversify its revenue streams amid competition from other large technology companies. Growth in headcount will "moderate significantly" as well.

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Google remains a dominant player in online advertising even as Alphabet has ventured into "moonshots" in new sectors.

On a per-share basis, the Mountain View, California-based company said it had profit of $12.77. So Google is responsible for 109 percent of Alphabet's profits and 69 percent of its revenues.

Amazon and Alphabet are increasingly competing for advertising dollars and in cloud computing. "But with talk of economic pressures on the horizon in the US, noticeable sluggishness in their fourth-quarter performance could warn of more dramatic slowdowns in the digital advertising market, which had been relatively insulated while the ad giant enjoyed strong double-digit growth rates". Operating loss for the unit was $1.3 billion, way up from $748 million a year ago.

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