Google's parent company, Alphabet, announced its quarterly earnings on Monday evening, beating Wall Street expectations and bringing in $39.28 billion in revenue, up 20 percent year-over-year. Google shares slid around 3 percent in Monday after-hours trading. So there's more focus on profit margins and spending. The company has raised its head count by almost 20,000 since past year, now employing nearly 100,000 people and continuing to spend prodigiously.
Revenue from Google properties rose to 27 billion from about $22 billion in the year-ago quarter.
Revenue-wise, Alphabet is still an advertising company, despite its investment in cloud and other business. And underneath, there are small signs of trouble in its ad business.
Alphabet's traffic and acquisition cost were $7.4 billion, up from $6.5 billion a year ago.
The company had $31.07 billion in total fourth-quarter costs and expenses, up 26 percent from a year ago. For the latter, much of the cost jump over the year was from fiber cable rollouts - Google has an bad lot of private fiber - while the ad giant also invested in, among other things, data centers and the hiring of more sales and research workers. And this isn't an industry-wide problem; both Amazon and Facebook have continued to successfully increase the amount they charge advertisers. Amazon reported 97 percent growth in advertising revenue this quarter.
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The good news for Alphabet holders is that the company has the ability to boost margins and earnings by restraining spending. However, it is digital advertising, through the Google search engine, YouTube video-sharing network and other platforms that drives its profits. It barely brushed that mark in the fourth quarter, but that's a hard pace to keep up for a company with more than $100 billion in sales.
Despite Google's operating losses in the category for its side businesses such as Waymo and Verily, the company did manage to make gains in terms of total revenue flow - moving up to $154 million from $131 million the previous year. The three largest advertisers, according to Ad Exchanger, were Geico, Samsung and Disney, which together accounted for 15% of all advertising past year.
Also notable: Alphabet's other revenues, which include non-Google business, such as the company's autonomous vehicle project, saw its losses almost double, to the tune of $1.3 billion for the holiday quarter.
While Alphabet relies on Google's advertising business to generate profits, YouTube and cloud computing are costlier operations than its traditional desktop businesses.
One of the biggest challenges, it seems, that Alphabet faces is the battle to dominate cloud storage and services.
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