Alphabet Holiday Earnings Stronger Than Expected

February 5, 2019
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Google’s parent company, Alphabet (NASDAQ: GOOGL), released holiday quarter earnings data on Monday, surprising analysts with stronger than expected revenue.

Alphabet generated $39.28 billion of revenue in the fourth quarter, an increase from $32 billion a year ago, and slightly higher than the analyst estimates consensus of $38.90 billion. Net income was $8.95 billion, equating to $12.77 per share.

After Hours Trading Slide

While the earnings beat was good news, some investors were unhappy about Alphabet’s plan to invest heavily in research and development, and other projects in the coming year.

Alphabet spent $6.85 billion on capital expenditures in the fourth quarter, almost double of what it did a year ago. For all quarters in 2018, the company spent $24.61 billion on capital expenditure. This led to a 21% operating margin in the latest report, compared to 24% at this time last year.

Spending isn’t necessarily a bad thing, but it did lead to a small sell-off after hours. Google was up 2.04% at the end of regular trading on Monday but fell -3.05% in after hours trading.

Alphabet CFO Ruth Porat told investors that “We’re investing aggressively in our newer businesses within Google, particularly cloud and hardware.” Google is also ramping up its hiring process, saying that there will be an “increased head count to support not just ads, but in particular, cloud.”

It is clear that Alphabet wants to expand its revenue streams far beyond search engine advertising.

Alphabet Performance for the Year so Far

Alphabet is one of the big tech companies to benefit from renewed confidence in the stock market this year. Despite a slide in after-hours stock price, performance is strong when looking back over the year to date.

  • Stock price has increased 6.67% when looking at the last five days of data.
  • Year to date, stock price has increased 9.23%
  • Despite heavy volatility at the end of 2018, Google stock is up 5.26% over the last 12 months.

Investors are concerned that expenditure will erode profits in the coming year. While this may be true, long term investors can take confidence from the fact that Google is focusing on the future, rather than taking a risk by playing it safe with short term gains.

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