Alphabet Profits Surge, But Spending Worries Investors

Tom Jowitt,

Shares in Google parent slide after heavy Q4 spending, but healthy advertising revenues bolsters financials

Alphabet has posted a large surge in both profits and revenues, but the parent of Google has also increased its spending, prompting a share dip from worried investors.

Google continued heavy spending on its Pixel smartphones, YouTube, and cloud services, has worried investors in the past, despite the firm ability to continually deliver robust financials.

Indeed, the latest results show that Google’s fiscal performance remains strong despite a number of problems for the firm in the past year, including a record 4.3 billion euros (£3.83bn) fine for commercial practices related to its Android mobile operating system from the European Commission last summer.

Problem year

Other problems to have impacted Google in the past year includes a GDPR complaint that alleged that Google routinely discloses sensitive information about users’ health, ethnicity, finances and other areas.

Google was also hit with a 50 million euro (£44m) fine for breaking EU privacy laws from the French data protection regulator in December.

Google has also taken the decision to shutter its failed social networking platform Google+, and the firm has also been rocked with staff walkouts and employee unrest over a number of controversial projects.

Heavy spending

But digging into the Q4 and 2018 financials, it is clear these issues have had little impact on Alphabet’s bottom line (and indeed its growth), with the firm beating Wall Street expectations.

For the fourth quarter ending 31 December, Alphabet posted a net profit of $8.9bn, compared to a net loss of $3bn a year earlier. Revenues also from $32bn to an impressive $39.3bn.

There was equally good news when comparing the year-end results.

Profit rose to a very healthy $30.7bn from $12.6bn in 2017. Year-end revenues likewise rose $136.8bn from $110.8bn in 2017.

“In 2018 we delivered strong revenue growth, up 23 percent year over year to $136.8 billion, and up 22 percent for the fourth quarter to $39.3 billion,” said Ruth Porat, CFO. “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.”

The only issue that did cause some worry was Alphabet reporting sharply higher fourth-quarter spending on video content, employees and facilities, all of which sent shares in the firm down 3 percent in after hours trading on Monday according to Reuters.

Alphabet reported that its capital expenditures rose 64 percent compared to last year, up to $7.08 billion.

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