Alphabet investments eat into profit – but they’re paying off
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Alphabet investments eat into profit – but they’re paying off

Technology giant Alphabet, best known as the parent company of ubiquitous search engine Google, reported earnings last week that were met with a mixed reception. The reason for this state of affairs was an equally mixed set of results: revenue was up significantly, but profit failed to meet analysts’ expectations. The main driver of the low profit, however, was down to a massive rise in expenditure. And the company says some of its investments are paying off.

Despite mixed feelings over its last quarter, Alphabet’s share price is still up by 39% over the last 12 months

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SOURCE: Yahoo Finance

Fourth quarter sales were strong – up by 24% from the same quarter a year ago to 32.3 billion. That beat analysts’ estimates of $31.9 billion. However, that win wasn’t enough to pacify investors when the company revealed that its profit for the quarter was “just” $6.8 billion (or $9.70 per share). Analysts had hoped for $7 billion profit, or $10 per share.

The cause of this disparity between sales and profit was (according to the company’s chief financial officer, Ruth Porat) “higher marketing costs” and a cluster of payments-to-partners all coming together. Expenses jumped by a whopping 27% from the year-ago quarter to $24.7 billion.

Google’s CEO, Sundat Pichai, says some of that spending is paying off. Cloud computing is now bringing in $1 billion in quarterly sales; Google’s G Suite software package for enterprise has doubled its customer base to 4 million in two years.

Looking beyond the company’s investments and profit figures, the underlying health of the company is clearly robust. Ivan Feinseth of Tigress Financial Partners summed it up in an email to investors when he said: “overall, it was a good quarter. Advertising revenue is still up significantly.” And he’s right: despite the myriad of areas Alphabet is into, when it comes to profitable, sustainable, proven, business – it’s all still about Google’s advertising. And that, as the last quarter shows, is stronger than ever.

Disclosure

Dominion holds Alphabet in its Global Trends Ecommerce Fund.


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