Google parent Alphabet delivered a better-than-expected holiday quarter earnings report Monday, but investors nonetheless sent the company’s share price down in after-hours trading on fears of lower operating margins.
Alphabet generated revenue of $39.3 billion during the fourth quarter of 2018, compared to $32.3 billion during the same quarter a year before. The company’s net income for the most recent quarter was $8.9 billion. For the same quarter in 2017, Alphabet had booked a net loss of $3 billion due to changes in taxation following Trump’s tax cuts. Without those changes, net income for Q4 of 2017 would have been $6.8 billion.
Analysts had expected net income of $7.6 billion on revenue of $38.9 billion.
A closer look at Alphabet’s numbers revealed that the company’s operating margin declined from 24% to 21% year-over-year, which likely contributed to investors sending the stock down 3% in after-hours trading. The company also included a $1.3 billion securities gain in its net income, which means that the company’s actual business grew less that its net income numbers may suggest.
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Also notable: Alphabet’s other revenues, which includes non-Google business including the company’s autonomous car project, saw its losses nearly double, to the tune of $1.3 billion for the holiday quarter.
One growing contributor to the company’s revenue is Google’s hardware business. Alphabet doesn’t break out the amount of money it makes with Pixel phones and Home smart speakers, but the company’s non-advertising revenues grew from around $5 billion in Q4 of 2017 to $6.5 billion in Q4 of 2018.
However, the company’s bet on Google-made hardware also comes with significant expenses: Google spent close to $1.5 billion acquisitions in 2018, up from $287 million in 2017. A big chunk of that was the HTC phone team it acquired last year to design and build its own handsets.
Google CEO Sundar Pichai highlighted YouTube as one of the company’s success stories, saying that the number of YouTube channels with more than 1 million subscribers nearly doubled in 2018. The number of creators making 5-figure revenues with their channels grew by 40% during the year, he said.
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