Google parent Alphabet is in rude financial health, but competitors are eating into its margins.
Internet juggernaut Alphabet has reported Q4 revenues of $39.3bn, a 22pc increase on the previous year.
This is despite a tough year that saw the Google parent company run the gauntlet of antitrust fines, political scrutiny, employee revolts and the onset of GDPR in Europe, which has already seen the company hit with a fine in France.
Profits for the quarter hit $8.95bn, which more than offsets the $3bn loss it made in the same quarter last year. Alphabet saw additional tax expenses of $9.9bn in Q4 2017 after changes in the tax code and repatriation of foreign earnings.
Finding silver in the clouds
Despite the seemingly rosy numbers, however, if you dig deeper you will see the results are tarnished by rising traffic acquisition costs (TACs) of $7.4bn, which are up from $6.4bn last year. TACs refer to what Google pays to hardware platforms such as Apple’s iOS to be the default search engine on its devices.
Another factor is that costs-per-click for ad sales on Google properties fell 29pc. This likely reflects the increasingly competitive landscape that Google is operating in, facing competition not only from Facebook but new players such as Amazon.
Earnings per share surged from a loss of $4.35 last year to a solid $12.77 this year. Despite this, trading in Alphabet shares was down 3pc as Wall Street also expressed dismay at slow sales and rising losses at the internet giant’s Other Bets group – made up of projects such as Google X and Pixel hardware – which reported revenues of $154m, up from $131m last year. Other Bets saw its operating losses increase to $1.3bn from $748m.
But whatever way you look at it, Alphabet is still a money-making beast and the rising costs of doing business possibly reflect a maturing post-gold-rush digital economy.
“In 2018 we delivered strong revenue growth, up 23pc year over year to $136.8bn, and up 22pc for the fourth quarter to $39.3bn,” 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.”
Updated, 9.27am, 5 February 2018: This article was updated to amend incorrect figures for Alphabet profits. Q4 profits were $8.95bn, not $9.95bn; compared to a previous loss of $3bn, not $9.9bn.