Published: Wed, February 06, 2019
Money | By Bruce West

Digital ads lift Google but shares hit by costs

Digital ads lift Google but shares hit by costs

Fourth-quarter sales, minus fees paid to partners, climbed 23 percent to $31.84 billion, the internet giant said in a statement Monday. The company's operating margin, a closely watched measure of profitability, was 21 percent, down from 24 percent.

Alphabet Inc's fourth-quarter revenue and profit beat Wall Street's expectations on Monday but sharply higher spending, as it added data centres, cloud engineers and marketed its services heavily during the holidays, anxious investors.

Alphabet generated revenue of $39.3 billion during the fourth quarter of 2018, compared to $32.3 billion during the same quarter a year before.

"It's like they've got the goose that lays the golden eggs and their job is to spend the money", he added, noting Google's dominance of the digital ad market.

Alphabet, which is valued at $790 billion, is one of the world's largest public companies, with interests spanning cloud computing, smartphones and self-driving cars.

Revenue from Google's Other division, which includes cloud and hardware, rose 31 percent to $6.49 billion. Ad revenue on the video platform rose 11% year over year in the third quarter, and just over half of advertisers have renewed their spending on YouTube. Investors also would the company to provide a more detailed breakdown of revenues by business, including YouTube. Microsoft reported 76 percent growth for its Azure infrastructure-as-a-service business and 20 percent growth for its overall cloud business that also includes applications such as Dynamics 365 and Office 365.

Earnings per share on the year were $43.70, up from $18.27 last year, but short of $45.79 analysts estimated.

R&D spending has risen 40% and Alphabet's total headcount has increase by 4,000 going into the last quarter of 2018.

Google's cloud unit is laboring through a management transition as well.

Chief Executive Sundar Pichai said during the earnings call that Google remains on track to begin opening its new New York City campus in 2020. Alphabet did not separately disclose how much its Cloud business contributed to this quarter's revenue.

Alphabet is the last of the so-called Faang - Facebook, Apple, Amazon, Netflix and Google - to report its quarterly earnings. For the full year, analysts are looking for EPS of $41.81 and revenues of $136.49 billion, the vast majority of which is ad revenue from Google search and YouTube. However, those operations showed a $1.3 billion operating loss. Artificial intelligence (AI) developments are also likely to drive future growth for Google and a source of at least some of its R&D expenditure. Most of those were engineers and product managers, with cloud the biggest-growing segment, Porat said.

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