Alphabet Earnings Beat But Rising Traffic Aquisition Costs Concern

The week of the FANG, internet monsters Alphabet, owner of Google started off on Monday beating earnings and revenues. Going forward there is concern about rising traffic aquisition costs which saw $GOOGL shares trade up then down.

The week of the FANG, internet monsters Alphabet, owner of Google started off on Monday beating earnings and revenues. Going forward there is concern about rising traffic aquisition costs which saw $GOOGL shares trade up then down.

Earnings

Earnings per share $9.93 beating $9.28 Thomson Reuters consensus estimate. Revenue: $31.15 billion beating the $30.29 billion expected by Thomson Reuters consensus.Operating income for 2018 $7 billion versus $6.6 billion in 2017.

Market Reaction > Alphabet Inc Class A NASDAQ: $GOOGL

After hours 1,073.00 −0.81 (0.075%)

(After intially rising to $1110 after the release)

Expenses

  • Alphabet reported that GAAP costs and expenses rose 33% year-over-year to $24.16 billion, outpacing revenue growth of 26%.
  • CFO Porat attributed that increase primarily to research and development. 
  • Alphabet’s accrued capital expenditures were $7.7 billion, which is triple the expenditures for the same period in 2017.
  • CFO Porat said the rise included the $2.4 billion purchase of New York City’s Chelsea Market building. 

Google parent Alphabet Q1 2018 Earnings

Google Ads

  • Google’s ads business earned $26.642 billion in revenue for the first quarter.
  • Google properties, including search and YouTube, paid clicks increased 8 percent year-over-year while cost-per-click, or how much it can charge for its ads, decreased 7 percent year-over-year.
  • Properties revenues were nearly $22 billion. Its Network Members’ properties, which includes third-party sites, saw its impressions increase 5 percent year-over-year and its cost-per-impression decrease 10 percent year-over-year. Network revenues were $4.6 billion.
  • Traffic-acquisition costs (TAC) was $6.28 billion and represented 24% of Google’s total ad revenue for the quarter, up from 22% a year ago and flat with Q4,  slightly above an analyst consensus of 23.4%.
  • Concerns about rising TAC costs is what saw Alphabet’s stock fall after last quarter results were released in February, and remain a concern this quarter.
  • On $GOOGL’s earnings call, chief financial officer Ruth Porat said the TAC increase reflects the fact that mobile search and programmatic advertising have higher TAC.

Other Revenues – Including Cloud, Play

  • “Google Other revenues” include its cloud business and hardware sales brought in $4.3 billion for the quarter, up from $3.2 billion year-over-year
  • Includes revenues from smart-home unit Nest for the first time.
  • This quarter, Google changed its monetization metrics for Google’s Network properties from clicks to impressions.

“Alphabet Other Bets”

  • Includes healthcare company Verily and internet service provider Fiber.
  • Other Bets posted Q1 revenue of $150 million on operating losses of $571 million.
  • Previously, this was where Alphabet posted Nest revenues, which explains why revenue declined from $409 million in Q4. 

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