Alphabet Earnings: Strong Revenue Growth, Tax Provisions Impact Profits

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Alphabet (NASDAQ:GOOG) announced its fourth quarter results on February 1. The company posted 24% y-o-y growth in revenues to $32.3 billion. In line with our expectations, much of the growth was driven by mobile search, the programmatic platform, and YouTube. Additionally, the company reported substantial growth in other revenues from Play (digital store), hardware, and cloud. However, provisions for income taxes grew to $11 billion as it included $9.9 billion for items associated with the U.S. tax cut and job act. As a result, the company reported a net loss of $3 billion and loss per diluted share of $4.35 for Q4. The key highlights of the results were as follows:

  • Google segment revenues for the quarter grew by 23.7% y-o-y to $31.9 billion. Google’s operating profit grew by 11% to $8.76 billion, while the operating margin declined by 310 basis points to 27.5%.
  • The Other Bets business, which includes Fiber, Verily, Calico, Nest, self-driving cars, and incubation activities in X, reported revenue of $409 million and operating losses of $916 million on a quarterly basis.
  • Cost per click (CPC), which measures the price paid for the number of times a visitor clicks on a search ad, has been seeing declines for the past few years. In Q4, CPC declined by 16% on Google websites and 7% on network member sites. Furthermore, the aggregate cost per click declined by 14% during the quarter. However, paid clicks, which indicate tad volume, grew by 48% on Google sites and 13% on network member sites. As a result, the ad revenues for the company grew by 23.7% during the quarter.
  • YouTube continues to drive revenue growth as 1.5 billion monthly viewers viewed 60 minutes of videos each day on their phones and tablets. The company introduced YouTube Go services to 130 new countries yesterday, and this launch will boost revenues in the future.

We have created an interactive dashboard that illustrates Alphabet’s results for Q4. We have also estimated revenues for Q1’2018. You can view it here to understand how the company performed in Q4 and our expectations for Q1. You can also modify drivers with blue dots to create alternate revenue and EPS guidance.

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We are in the process of updating our Alphabet model. At present, we have a $1082 price estimate for Alphabet, which is below the current market price.

See our full analysis for Alphabet

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