Alphabet 4Q Sales Gain on Mobile Search, But Bottom Line Misses Street

Alphabet, the parent company of Google, saw its fourth quarter profit grow in the mid-single digit percentages for the fourth quarter to $9.36, lagging sales growth of as much as 22 percent to $26.1 billion.

That bottom line number missed the consensus of $9.64, while the top line bested Street projections, which stood at $25.3 billion.

Behind the numbers, and in a repeat of the trend seen in past quarters, the search engine remains the core business and advertising still stands as the lion’s share of sales, at 86 percent, but that is down from 89 percent last year. Ad revenues were up 17 percent year over year.

Ad clicks were up 36 percent year over year and prices for the ads were off 15 percent.  The gap, as always, comes with the growth in mobile and also YouTube ads (not broken out as a revenue contributor), with relatively lower prices paid across both businesses.  Digital marketing firm Merkle said recently that Google garnered 96 percent of search-ad clicks seen across mobile devices in the last quarter of the year.

But as mobile ad growth overtakes that of desktop-focused ads, the operating margin of the traditional business slipped to 30.6 percent from almost 32 percent last year.

The newer businesses, and non-ad sales – which includes hardware — were up 62 percent year over year to $3.4 billion.  These were among the faster growing segments of the company.  Investment in those initiatives stood at $3 billion, up $1 billion from last year, tied in part to infrastructure buildouts.  The push into consumer electronics includes Google Home speakers (which management said had done well during the holiday selling season) and Pixel smartphones, items launched in the latest quarter.

The Other Bets segment, which is a portfolio of “experimental” initiatives that exist outside of Google proper, managed to shrink losses to $1.1 billion, down 10 percent from last year.  Revenue was up 75 percent to $262 million, as measured year over year.  The portfolio includes Waymo, a self-driving car business, and Nest, which focuses on connected devices.