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Internet giant Alphabet, owner of Google reported better than expected fourth quarter earnings after the market Monday. $GOOGL also increased stock buybacks but operating margin fell to 21% from 24% a year worrying investors.

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Alphabet Reported Fourth Quarter Earnings After The Close Monday

$12.77 Beat $10.86 EPS Forecast and $39.28B Revenue Beat $38.9 Billion Forecast

Earnings 

Alphabet Inc. (GOOGL) reported fourth-quarter earnings Monday after the closing bell of $12.77 a share, including the impact of a tax act and equity investments, with gross revenue rising 22% to $39.28 billion. Earnings included a $1.3 billion unrealized gain related to a nonmarketable debt security, the company said.. Analysts polled by FactSet on average expected earnings of $7.64 billion, or $10.86 a share, up from losses of $4.35 a share in the year-ago quarter. Adjusted for the impact of changes to the U.S. tax code, earnings were $9.70 in the fourth quarter a year ago however. Contributors to Estimize, which crowdsources estimates from analysts, fund managers and academics, forecast Alphabet earnings of $11.49 a share.

Revenue without accounting for traffic-acquisition costs has analysts expecting $38.9 billion, up from $25.97 billion a year ago. Analysts model $7.63 billion worth of TAC costs in the fourth quarter. Estimize contributors predict sales of $31.41 billion, after accounting for TAC.

The majority of Alphabet revenue is from Google’s advertising products, but analysts predicted Google’s “Other” segment, imcluding its cloud computing division, hardware sales and Play Store will generate sales of $6.43 billion. Other bets, the segment Google reserves for its more experimental units, is expected to report sales of $187 million. 

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction > After hours $1,106.00 −35.42 (-3.10%)

Alphabet Q4 2018 earnings

Highlights

  • Revenues in the Google segment grew 21% to $39.1 billion during the quarter
  • Other Bets reported revenue of $154 million, up from $131 million last year.
  • Advertising revenue grew 20% to $32.6 billion from last year
  • Google’s other revenues, which comprises its cloud business, grew over 30% to $6.4 billion.
  • Total traffic acquisition costs (TAC) grew 15% year-over-year to $7.4 billion.
  • Total TAC, as a percent of Google’s advertising revenues, was 23%.
  • Paid clicks on Google properties grew 66% year-over-year while cost-per-click on Google properties fell 29%.

Googles ad revenue of total revenue Q4 18

Alphabet Third Quarter Earnings Recap

$13.06 Beat EPS 10.50 Forecast BUT Revenue of $33.7 Missed $34.04 Billion Forecast

Earnings

Alphabet's net income rose to $9.19 billion or $13.06 per share from $6.73 billion or $9.57 per share in the prior-year period. $GOOGL reported a 21% increase in total revenues to $33.7 billion, missing the consensus estimate of $34.04 billion. Alphabet’s beat it's adjusted quarterly earnings forecast of $10.50 per share.

Google's profit included $1.20 in gains on equity securities. Excluding the gain, Google had earnings of $11.86 a share. Google net revenue, minus what it pays in traffic acquisition costs to partner websites, also missed expectations. Google reported net revenue of $27.16 billion under the expected $27.29

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction > After hours 1,055.00 −$48.59 (-4.40%)

GOOGL Earnings Q3 18

Highlights

  • Google reported total traffic acquisition costs of $6.58 during the quarter, up 19.6% from a year earlier, but below estimates of $6.76 billion.
  • Google said operating margin fell to 25% from 28% a year earlier.
  • Google segment revenues totaled $33.5 billion
  • Other Bets revenue was $146 million.
  • Google advertising revenues were $28.9 billion in the quarter.
  • Paid clicks improved 62% year-over-year.

Earlier this month, Alphabet unveiled the Pixel 3, Pixel 3 XL, Chromebook tablet and the Google Home Hub at its #MadeByGoogle event. Last week, the company confirmed that it is working on a censored search engine as part of its plan to re-enter China, which is a lucrative market with a large customer base.

Google was recently forced to shut down its Google + services for consumers after it was revealed that a software bug might have compromised the personal data of around 500,000 users. 

 

What Analysts Will Be Watching

Google's traffic acquisition costs 

Traffic acquistion costs (TAC) have been rising, even more so after the Facebook scandal and $FB CEO hauled before congress  Alphabet management's response in the conference call on growing regulatory risk and data privacy issues will be closely analysed. The other factor will be Google and Amazon's competition in voice search and smart home appliances. How will this affect or benefit future advertising ? A moderation an improvement will improve margins.

Google last quarter lay claims to roughly 37% of the total U.S. digital advertising market, ahead of Facebook’s FB 20% and showed 24% growth in Q2 ad revenues.

Alphabet's "Google other" segment

This segment includes revenue from cloud, hardware, and the Android App store. This is a hot sector, not least the cloud factor. Other brought in only 14% of first-quarter revenue, however  its strong 36% year-over-year growth was a factor to overall growth and a key for momentum to continue. These investments are long term and will likely seef severe margin compression, how much will satisfy investors?

Google recently launched its next-generation Pixel smartphones. The new Pixel 3 and the Pixel 3XL boast an impressive camera, wireless charging, a better battery, dual front-facing cameras, and more. The new phones hope to challenge Apple’s AAPL latest iPhones. The company also sells an iPad-like tablet product called the Pixel Slate. Plus, the search engine powerhouse recently introduced its new Google Home Hub that allows users to voice-control other smart home products, such as security cameras and lights. Home Hub also features Google’s voice-assistant technology as it fights against Amazon AMZN and others in the crowded home assistant market.

Self-driving unit, Waymo

Where are we with regards to revenue and delivery? The obvious comparison is Tesla, does Waymo have similar issues?  

Source: Google, TradersCommunity, AlphaStreet

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