Google parent Alphabet hit by rising costs (WRAP-newseries)

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Alphabet Inc's fourth-quarter revenue and profit beat Wall Street's expectations on Monday but sharply higher spending, as it added data centres, cloud engineers and marketed its services heavily during the holidays, anxious investors.

The report offered no detailed breakdown of Alphabet income but Google took in the overwhelming majority of revenue in the quarter, $39.1 billion, with $32.6 billion from advertising.

"In 2018 we delivered strong revenue growth, up 23 per cent year over year to $136.8 billion, and up 22 per cent for the fourth quarter to $39.3 billion", Ruth Porat, Chief Financial Officer of Alphabet and Google, said in a statement on Monday.

Higher traffic acquisition (TAC) costs are also a potentially damaging factor, but as a percentage of total revenue, the 23% figure is actually lower than in the fourth quarter of 2017. The search giant's operating income rose 13% year-over-year from $8.6 billion to $9.7 billion. Revenues from its cloud business, hardware sales and Play, its music and media service, were $6.4bn.

Pichai said Google's cloud computing unit a year ago doubled the number of deals it struck worth more than $1 million. 1 The number of new employees - excluding contractors and the like - jumped 23 percent in a year to almost 100,000. Those brought in $6.49 billion during this quarter, a 31 percent increase year-over-year.

Earnings per share (non-GAAP) were $12.77, compared to a loss of $4.35 past year, and above estimates of $11.08.

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All this even as Alphabet released mostly upbeat news yesterday about its Q4 results, beating analysts' forecasts in key metrics in many instances.

"Ad revenue growth deceleration came in better than feared for Facebook, which we view as a positive for Alphabet", Mark Mahaney, an analyst at RBC Capital Markets, wrote in a recent research note. The global market for advertising appears to be finite, and Google and Facebook already grab a large share of spending.

Google passed 5 million paying customers for G Suite at year end, Pichai said. So Google is responsible for 109 percent of Alphabet's profits and 69 percent of its revenues.

The same appears true for Google parent company Alphabet Inc.

Ad revenue growth, as always, will be paramount to investors, while the company's "Other Bets" segment is expected to rise by more than a third. Operating loss for the unit was $1.3 billion, way up from $748 million a year ago.

Analysts said Google's core advertising business is starting to plateau, an indication of stiffening competition. A big chunk of that was the HTC phone team it acquired past year to design and build its own handsets. Most of those were engineers and product managers, with cloud the biggest-growing segment, Porat said.

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