Alphabet profit misses estimates on cloud costs
Alphabet Inc. profit missed analysts’ estimates, dented by heavy spending to support the Internet giant’s growing cloud business and a one-time tax payment.
Fourth-quarter revenue, after payments for online traffic from distribution partners, was US$21.22 billion, the company said in a statement Thursday. Profit before certain items was US$9.36 a share. Analysts on average expected sales of US$20.6 billion and profit per-share of US$9.63, according to data compiled by Bloomberg.
Alphabet reported US$3.1 billion in capital expenditures for the quarter, up 46 per cent from a year earlier. An Alphabet executive said that a lot of this spending went toward facilities and infrastructure, including computer servers and data centres to support the company’s online advertising business and newer cloud computing services.
Alphabet shares fell 3.2 per cent in extended trading, after declining 0.2 per cent to close at US$856.98 in New York.
Alphabet’s Google business has been investing heavily in its cloud business, and the fourth-quarter results showed this spending is paying off. Google’s Other revenue line, which includes cloud computing, jumped 62 per cent to US$3.4 billion. This segment also includes sales from its app store and hardware devices.
Some of Alphabet’s spending also supported Google’s new suite of devices, such as its Pixel smartphone, which went on sale during the holiday quarter. Google spent a considerable amount marketing the device, and analysts were concerned those costs would put pressure on profit margins. UBS analysts forecast marketing spending to climb by US$491 million, from the third quarter. A year earlier, the increase was US$466 million, they noted.
Profit was also crimped by an increase in the tax rate. Alphabet reported a 22 per cent rate in the fourth quarter, up from a five per cent rate in the same period last year. That was driven by a one-time tax payment in the latest quarter, the Alphabet executive said.