Alphabet is expected to report another strong quarter thanks to advertising and hardware growth.
- Google's parent company Alphabet missed its fourth-quarter earnings, sending the stock down slightly in after-hours trading.
- The company is paying more in traffic acquisition costs (TAC), which has been a concern as searches shift from desktop to mobile.
- Alphabet also announced an $8.6 billion share buyback and a new chairman of its board.
Alphabet, Google's parent company, posted disappointing results in its fourth-quarter earnings report, as rising expenses to reach smartphone users and increased competition cut into its business.
Google's stock initially plunged as much as 6% in after-hours trading on Thursday, but regained some ground and was down about 2% later in the evening.
Google also announced plans to repurchase an additional $8.6 billion of its own stock and it revealed financial details about its cloud business for the first time, offering investors a window into a fast-growing business that could supplement its advertising business.
Despite a "knee jerk" reaction among investors worried about rising expenses at Google, the company is well positioned to grow its business thanks to key assets like YouTube and its collection of popular mobile products, wrote GBH analyst Dan Ives, in a note to investors after the results on Thursday.
Alphabet was one of the three Big Tech companies that reported earnings on Thursday, along with Apple and Amazon. Amazon, which has become a growing threat to Google's ad business, beat Wall Street targets and saw its shares surge after hours. Shares of Apple were up slightly, despite a shortfall in iPhone unit sales.
Here are Alphabet's Q4 results versus Wall Street's expectations, per Bloomberg:
- Net revenue: $25.9 billion vs. $25.6 billion expected
- Net Loss: $3.02 billion (due to one time charge of $9.9 billion due to tax changes)
- EPS (adjusted): $9.70 vs. $10.04 expected
Here are some other important key pieces from the earnings report:
Traffic acquisition costs (TAC) was $6.45 billion, up quite a bit from the $4.85 billion in TAC a year ago. TAC is what Google pays to third parties like Firefox and Apple so web searches on those platforms direct to Google. The growing TAC is one of the biggest concerns with Google's advertising business. TAC as a percentage of revenues was the highest it's been in at least two years.
Alphabet said the new Tax Act in the US caused a one-time $9.9 billion expense in the fourth quarter.
Other Bets revenues were $409 million, up from $209 million a year ago. Other Bets are the other companies under the Alphabet parent like Waymo (self-driving cars), Nest (smart appliances), Verily (life sciences), and more. Other Bets operating losses were $916 million. They were $1.09 billion a year ago.
Google's Other revenues, which includes hardware products and cloud services, were $4.69 billion, up from $3.4 billion a year ago. Google released several new hardware products last fall like the Pixel 2 smartphone and Google Home Mini speaker that contributed to Other revenues. The company sees hardware as a promising area of growth. On the earnings call, Google CEO Sundar Pichai said Google's cloud services are generating $1 billion per quarter in revenue, but didn't give specifics.
Alphabet's earnings report also announced the company plans to buy back up to $8.6 billion worth of Class C stock.
Alphabet announced in its earnings report that it appointed John Hennessy as chairman of the board. The company's former executive chairman Eric Schmidt stepped down a few weeks ago.