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Google Beats Market Expectation In Q4 But Shares Dip On Increased Expenditure

Google Beats Market Expectation In Q4 But Shares Dip On Increased Expenditure
Market and analysts’ expectations in terms of both revenues and profits were exceeded by Google parent Alphabet for the fourth quarter but despite this, the company saw its shares drop by as much as 3 per cent because of concerns among investors of higher spending by the tech giant.  
Following a loss in earnings per share in the same period in 2017, the company chalked up EPS of $12.77.
Investors were apparently concerned about the company spending more on some of its costlier businesses such as YouTube and cloud services which led to a sell off.  
The fourth quarter net income reported by Alphabet was $8.95 billion which was more than Wall Street was expecting. The EPS of $12.77 was also more than analysts’ expectations of $11.08 per share. The company reported revenues of $39.3 billion in the fourth quarter which was 22 per cent higher from the same period a year earlier. The market was expecting revenues of $38.9 billion.
Compared to the traditional desktop business, YouTube and cloud computing are costlier operations even as Alphabet relies significantly on the advertising business of Google for its revenues and profits. While the fourth quarter saw the company expending more on advertising costs on mobile, the problem was also compounded by increase in the commissions that Alphabet pays other companies against advertising so that users are directed to its search engine. The overall expenses grew to reach $7.4 billion compared to $6.5 billion in a same period a year ago. More engineers were also hired by the company for its Google Cloud Platform during the result period.
However for many analysts, the latest earnings report clearly indicated that ability of Google to generate quite a bit of revenues and profits despite enduring a troubled year culminating in a tumulus second half for 2018. The company faced issues and controversies related to data privacy and scandals of sexual harassment which led to a Google employee leaving the company.
The company and the industry as a whole was rocked by a report published in the New York Times in October which revealed that an exorbitant amount of $90 million was paid by Google to an employee charged with misconduct as exit pay. Further in October and December, the company also revealed the existence of two bugs which made user data vulnerable. The first bug exposed data of 500,000 users while the second breach exposed data of 52.5 million users.
Google shares have fallen back to just above where they were trading early last year after peaking in July.
The manner in which Google is able to tackles cloud computing services in the next year would also determine the degree to which the tech giant is able to deal with and fares with investors. Google has two options – engaging in organic growth or through aggressive acquisitions.
"Advertising continues to be the crux of what they do, but when you look at cloud, that's a major growth area for Google," said Daniel Ives, research analyst at Wedbush Securities.

Christopher J. Mitchell

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