Despite Beating Earnings and Revenue Estimates, Alphabet’s Stock Falls

Sometimes when you come out on top you still may not be the winner at the end of the day.  Take Google’s parent company, Alphabet Inc, for example:  They might have beaten Wall Street fourth quarter earnings and revenue estimates but shares were down nearly 3 percent late Monday and going into Tuesday morning.

Taking a closer look at the actual numbers, the search giant posted a fourth quarter net income of $8.95 billion. This equates to about $12.77 per share.  Now, this is far better than the numbers from one year ago, when the company posted a loss of $3.02 billion ($4.35 per share).  But changes to the US tax code resulted in having to add another $9.9 billion in expenses for the fourth   quarter of 2017.  After adjusting for tax costs, Alphabet reported earnings of $9.70 per share.

Altogether, this benefited Alphabet’s bottom line with $1.3 billion unrealized gains from non-marketable debt security.  Without that benefit, Alphabet would have reported $10.91 per share in earnings, which is indeed higher than the estimated $10.86 per share.  

At the end of the day, Alphabet Inc demonstrated their revenue rose from $32.32 billion one year ago to $39.28 billion, today. Analysts had estimated revenue to be around $38.9 billion.  Of course, most of the business Alphabet does come from Google’s activity (actually, from Google’s advertising and marketing capabilities), which raked in $32.64 billion, alone, in Q4.  

But you must also take into consideration that Google pays traffic acquisition costs (the fees that Alphabet pays other companies—including Apple—for Google to remain the default web search engine) grew by nearly one billion dollars, to $7.44 billion.  At the same time, traffic acquisitions costs fell to 23 percent of Alphabet’s total ad revenue, down from 24 percent last year. 

In addition, Alphabet assigned $6.85 billion towards Google’s capital expenditures, which is nearly double the $3.81 billion from last year. In 2018, Google’s overall capital expenditures also doubled, to $25.46 billion.  

Finally, Alphabet Chief Financial Officer Ruth Porat comments, “We’re investing aggressively in our newer businesses within Google, particularly Cloud and hardware,” essentially reiterating with Google Chief Executive Sundar Pichai said before.  In an earnings call, Porat added that Google is specifically investing in more engineers in addition to hiring more sales and marketing team members.