Shares Of Google Parent Company Drops Even Though It Surpassed Revenue And Profit Estimates

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Alphabet, the parent company of Google, surpassed consensus estimates in the company’s fourth-quarter results that it released tonight. It exceeded the expectations for both revenue and profit.

The tech titan reported net income amounting to $8.9 billion (£6.8 billion). It marked a turnaround from the reported $3 billion loss in 2017 when it recorded a one-off tax charge that amounted to $9.9 billion. The results outperformed the average analyst prediction of $7.7 billion which was collated by S&P Global Market Intelligence.

The revenue during the busy holiday quarter increased by 21.5 percent to $39.3 billion, surpassing the estimates of $38.9 billion.

However, the share price of Google dropped by more than three percent in after-hours trading, as it reported increasing costs in its money-making advertising business. The traffic acquisition costs, the fees that Google pays firms such as Apple just to be its default search engine, increased by 13 percent in the last quarter alone to reach $7.4 billion.

As a whole, advertising revenue rose by 20 percent from the previous year to reach $32.6 billion. The amount earned per click of Google dropped by 29 percent over the same period, giving rise to concerns that the company may be losing its dominance in ad pricing to its rivals.

It also reported a doubling of capital expenditure to just above $7 billion, an increase from the $5.6 billion that was recorded in the same period in 2017.

The “other revenues” segment of the company, which includes cloud business and hardware sales of Google, increased to $6.5 billion in the fourth quarter, edging above the estimates of $6.4 billion.

Ruth Porat, the chief financial officer of Alphabet, said that the company will be making “focused investments” in its talent and product infrastructure in the coming months. The headcount in the company primarily grew in its cloud segment, increasing to nearly 99,000 employees over all from the 80,000 a year ago.

The chief investment officer at London-based private investment office J. Stern & Co, Christopher Rossbach, stated: “Alphabet is one of the most consistent large cap companies in the world with this quarter proving no exception.”

Meanwhile, the equity analyst at Hargreaves Lansdown, George Salmon, said that the higher-than-expected capital expenditure of Google is “concerning.”

He noted: “While the core business is still growing impressively, the significant spending shows growth isn’t quite as capital light as had been hoped.”

He continued: “Still, Alphabet generated $5.9bn in free cash flow this quarter. That means its cash pile is nearing $100bn, so it clearly has the financial firepower to go toe-to-toe with rivals like Amazon, who Alphabet is up against in cloud computing, and increasingly in the core advertising business too.”