Google’s parent firm Alphabet takes $10 billion hit.
Google’s parent firm reports $3 billion loss, points to one-time tax on foreign earnings
MOUNTAIN VIEW » Google’s parent company Alphabet took a $10 billion hit from the new federal Tax Cuts and Jobs Act, leading to a $3 billion loss for the fourth quarter of 2017, the firm reported Thursday.
The company also announced an $8.6 billion stock-buyback plan and named a new board chair to replace Eric Schmidt, who announced his resignation in December. New chair John L. Hennessy, a computer scientist and former Stanford University president, has been a board member since 2004.
Alphabet’s tax blow hit shareholders’ earnings, leaving them with a $4.35 loss per share for the quarter.
Following Alphabet’s earnings report, released just after 1 p.m. Thursday, the company’s stock price fell 2.3 percent in after-hours trading to $1,154 by 4:45 p.m.
On the positive side, the Mountain View tech giant blew past Wall Street’s revenue expectations, chalking up earnings of $32.3 billion, more than $6 billion higher than analysts had predicted and a hefty 24 percent jump from the fourth quarter of 2016.
“For a company of Alphabet’s size and scope, for it to grow revenue at that rate, that really should be a primary takeaway,” said CFRA analyst Scott Kessler.
Still, Google is looking at significant headwinds for its ad business, which provides most of Alphabet’s revenue, because of limitations to the growth of digital advertising, Pivotal Research analyst Brian Wieser said in a research note.
Absent the tax changes, Alphabet would have topped $ 6.8 billion in profit, and earnings per share would have been $9.70, the company said in its earnings release.
The earnings per share, without the tax impact, still would have missed analysts’ expectations, but only by about 30 cents per share. Alphabet also would have missed on profit by around $300 million, as Wall Street expected $7.1 billion in quarterly net income.
In explaining the tax’s impact, Alphabet cited $9.9 billion in extra taxation froma “one-time transition tax on accumulated foreign subsidiary earnings and deferred tax impacts.” The company said the transition tax — which opened the way for Alphabet and many other major U. S. corporations to pay a one-time 15.5 percent tax on earnings stockpiled overseas for years and then bring the money back to the U. S. — resulted from the December enactment of the federal Tax Cuts and Jobs Act.
Kessler estimated from the numbers Alphabet provided that it has about $64 billion in overseas capital, and said he expected the firm to bring home some of the money this year.
The company also said Thursday that on Wednesday, its board approved the $8.6 billion stock buyback of its Class C shares, saying the repurchase would take place “from time to time” through open-market pur- chases or privately negotiated deals.
“I’m a little disappointed,” Kessler said. “I thought … the repatriation capital that I expect to be coming back this year (would) lead to a much bigger buyback. I would not be surprised if that was not the only buyback the company announces this year.”
Alphabet added about 2,000 employees in the quarter, pushing its total headcount to just over 80,000. During 2017, the firmaddedmore U.S. workers outside the Bay Area than in this region, Google CEO Sundar Pichai said.
“We have been making substantial investments in our three biggest bets: cloud, YouTube and hardware,” Pichai said.
Pichai touted “great momentum” with videostreaming service YouTube. “We see it being used across every possible use case,” Pichai said. “People use it to go catch up on sports, music, entertainment.”
Analyst Kessler was skeptical of claims about YouTube’s potential for broad market domination in the face of competition from Netflix, Amazon, Facebook and Twitter, especially considering how strongly YouTube is branded in the publicmind as a place to watch usergenerated videos.
Alphabet is also confronted with trouble in Europe, where investigators have already levied a $2.7 billion antitrust fine against the firmover its online shopping service, and are now going after the company over its Android mobile operating system and AdWords advertising business.
Europe may account for a third or more of Google’s global revenues, and the European Union will likely act to curtail the firm’s advantages in that market, Kessler said.