Alphabet Earnings Tops Analysts But Rising Costs Worries Investors

Google CEO Sundar Pichai
  • Alphabet (NASDAQ: GOOGL) posted earnings per share of $12.77 vs $10.86 expected by analyst
  • Revenue came in at $39.28 billion while analyst were expecting $38.9 billion
  • Shares were trading down 2% in the post market session

Alphabet shares ran down 3.01% in after-hours trading to $1,106.00 on Monday after the Google-parent company said cost per click on Google properties declined 9% from last quarter and 29% from the period last year.

Traffic acquisition costs (the fees it pays other companies such as Apple Inc. to place ads) also jumped 15% to $7.44 billion from $6.45 billion during Q3 2018 and up 13% from $6.58 billion year-over-year. The company hopes to clamp down the costs, in part by selling more products directly to consumers, though products such as Google Pixel 3 and Pixel 3 XL phones are quite unpopular.

Alphabet remains as dependent as ever on the hardware of its competitors to reach customers. The tech giant, which was the last FANG stock to report earnings, said Q4 2018 net income was $8.95 billion while revenue jumped 22% from the period last year to $39.28 billion.

GOOG Earnings & Outlook

Fourth-quarter net income came in at $8.95 billion, or $12.77 per share, compared with net loss of $3.02 billion, or $4.35 per share, in the same period a year ago. Analysts surveyed by Refinitiv were expecting earnings of $10.82 per share. Revenue rose 22% from $32.3 billion in Q4 2017 to $39.28 billion, surpassing Refinitiv expectations for revenue of $38.9 billion.

Alphabet’s “Other revenues” category that includes hardware sales and cloud business, brought in revenue of $6.49 billion during the quarter, up 31% year-over-year and slightly ahead of analysts’ estimates of $6.43 billion.

The “Other Bets” segment generated $154 million in revenue, while Wall Street was expecting revenue of $187.4 million. Analysts have called for adjusted earnings of $10.45 per share on revenue of $37.2 billion for the current quarter.

Alphabet Executive Comments

“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 and Google. “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.”