Alphabet Earnings Marred by Taxman, While Revenue Jumps

Alphabet reported better-than-expected revenue thanks to a fast-growing cloud-computing business and booming YouTube video advertising, but the taxman spoiled the party, according to Bloomberg. Fourth-quarter revenue, after payments for online traffic from distribution partners, was $21.2 billion, up 23 percent from a year earlier, the company said in a statement. Profit before certain items was $9.36 a share. Analysts on average expected sales of $20.6 billion and profit per-share of $9.63.

The earnings miss was mostly caused by a one-time tax payment that pushed the tax rate to 22 percent from a 5 percent rate a year earlier. CFO Ruth Porat called it a "discrete item," but didn’t elaborate on a conference call. Excluding that, Google would have reported $10.13 a share in the latest period, according to Ken Sena, an analyst at Evercore. Alphabet shares still fell in extended trading, which Sena attributed to high expectations and gross profit margins that slipped to 76 percent from 78 percent.

Alphabet’s Google unit has been investing heavily in its cloud offerings, trying to catch market leaders Amazon and Microsoft. All three are investing heavily in what is a booming business. Alphabet’s capital expenditure reached $3.1 billion during a quarter, a 46 percent increase from a year earlier. Executives said some of this went toward facilities and infrastructure, including computer servers and data centers to support the company’s online advertising business and cloud services. Google’s Other revenue line, which includes cloud computing, jumped 62 percent to $3.4 billion. This segment also includes sales from its app store and hardware devices.

On the conference call, Alphabet said more investment in cloud is coming this year. The executives also highlighted YouTube, while revenue from the online video service continues to grow at "a very significant rate," driven primarily by skippable TrueView ads, which marketers only pay for if viewers keep watching. While spending rose during the quarter, Alphabet was more frugal with its more experimental Other Bets, like self-driving cars and health care. These businesses generated $262 million in fourth-quarter revenue. The operating loss was $1.1 billion.