Alphabet Posts Loss, but Revenue Climbs -- WSJ
02 February 2018 - 7:02PM
Dow Jones News
By Jack Nicas
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 2, 2018).
Google parent Alphabet Inc. swung to a loss after taking a $9.9
billion charge related to the new U.S. tax law, though its core
advertising business continued its strong run even as criticism
grows over how the company monitors its clout and content.
Alphabet said the one-time tax hit caused a $3.02 billion loss
in the fourth quarter. Revenue rose 24% to $32.32 billion from a
year earlier.
The company keeps most of its $101 billion cash pile overseas,
but it didn't say Thursday when or if it would bring that cash to
the U.S. On a call with analysts, Chief Financial Officer Ruth
Porat said the company's spending plans are "unchanged from our
prior discussions."
Separately, Alphabet said its board had appointed director John
Hennessy, the former president of Stanford University, as its
chairman. Longtime Executive Chairman Eric Schmidt stepped down
from the post in December but remains on the board. The company
also said in a securities filing Thursday that another director,
former Princeton University President Shirley Tilghman, is leaving
the board.
Excluding the impact of the tax charge, Alphabet reported a 28%
increase in profit to $6.84 billion compared with the year before.
Without the tax charge, its profit of $9.70 a share missed
estimates of $9.98 a share, according to analysts polled by
FactSet. Shares were down 2% after hours.
RBC Capital Markets analyst Mark Mahaney attributed the earnings
miss to higher expenses related to so-called traffic-acquisition
costs, or fees Alphabet pays to such partners as Apple Inc. to put
its services front and center on their devices. Those fees rose 33%
to $6.45 billion from a year ago. That amounts to 24% of Google's
overall ad revenue, up from 23% in the prior quarter.
"The negative is expenses came in heavier than expected," he
said. "That raises a question: How much revenue is this company
having to give away to maintain these growth rates?"
Ms. Porat blamed the rise in traffic-acquisition costs on the
company's highest-growth areas -- mobile search and so-called
programmatic ads where Google places ads on partners' content --
which carry higher fees. Ms. Porat said some of these costs would
ease after the first quarter.
Alphabet also increased sales and marketing spending by 38% to
$4.31 billion, reflecting marketing around Google's new line of
hardware devices during the holidays.
Still, the three months marked the 32nd consecutive quarter of
revenue growth of 20% or more, he said.
Alphabet has been able to sustain such growth because its core
Google unit handles nearly 92% of internet searches, according to
tech data firm StatCounter. Google also owns the world's dominant
video site, YouTube, which the company said has helped drive growth
in recent years.
Google makes most of its money when users click on the ads it
serves across the web, including atop its search results, before
YouTube videos and on millions of third-party websites. And as
people continue to use the internet even more, those clicks keep
piling up. Google said clicks on its ads rose 43% in the fourth
quarter from the prior year, after having 47% growth in the third
quarter.
Yet the amount of money Google rakes in for each ad click has
fallen steadily in recent years. It earns less from mobile-search
and YouTube ads, which are rapidly growing, than from traditional
desktop search ads. Google said its revenue per click fell 14% in
the quarter from a year ago, after an 18% decline in the third
quarter.
The results, including another record for revenue and what would
have been record profit were it not for the tax charge, come as
Alphabet faces criticism on several fronts. Google's supremacy in
search drew it a $2.71 billion fine from European regulators who
said the company favored its comparison-shopping service over
rivals. YouTube, meanwhile, is grappling with a backlash from
marketers over the placement of their ads in front of undesirable
videos, including YouTube's curated lineup of "preferred"
content.
Google's dominant ad business accounts for the vast majority of
Alphabet's profits, but the company is trying to change that.
Alphabet is investing in a dozen units outside of Google, including
its self-driving firm Waymo and life-sciences startup Verily,
hoping at least a few of them will become big businesses down the
road.
These "Other Bets," though, are far from commercial successes
yet. Alphabet said they posted a $916 million operating loss in the
fourth quarter on $409 million in revenue, compared with a $1.09
billion loss on $262 million in revenue a year ago.
The more near-term bet to diversify its business comes from
inside Google. The unit is investing heavily in cloud and hardware
efforts, though it still trails rivals in both areas. Those
businesses, along with sales from its Google Play app and media
store, are combined in Google's "other revenue" segment, which grew
by nearly 38% to $4.69 billion from a year ago.
Alphabet also said Thursday its board authorized $8.59 billion
in share repurchases, its first since a $7 billion buyback that
began in late 2016.
Write to Jack Nicas at jack.nicas@wsj.com
(END) Dow Jones Newswires
February 02, 2018 02:47 ET (07:47 GMT)
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