Alphabet Q4 Earnings Come in Below Expectations, Company Has $10 Billion Tax Charge

Google corporate parent Alphabet didn’t quite meet analyst expectations for its fiscal fourth quarter of 2017, leading investors to send the stock down as much as 6% in after-hours trading.

Alphabet generated revenue of $32.32 billion during the holiday quarter, compared to $26.06 billion during the same quarter in 2016. Alphabet’s adjusted net income for the quarter was $6.84 billion, compared to $5.33 billion during the same quarter the year before. This translated to diluted earnings of $9.70 per share, compared to earnings of $7.06 for Q4 of 2016.

Google’s revenue, minus its traffic acquisition costs — the money it has to pay other companies as referral fees to get users to its sites and products — was $25.87 billion. Analysts had expected this to come in at $26.23 billion, and earnings of $10.04 per share. However, Google’s traffic acquisition costs grew from 22% to 24% of its advertising revenue year-over-year — a key number that added to investors’ sour mood.

The company’s earnings are significantly impacted by the recently-passed tax bill. The company’s effective tax rate shot up from 22% to 138% for Q4 of 2017, thanks to a one-time charge of $9.9 billion for repatriating foreign earnings. Including this one-time charge, Alphabet actually lost $3 billion in Q4. That being said, Alphabet is going to be just fine under the new tax rules going forward: Without the one-time charge, the company’s effective tax rate would have actually declined to 15%.

Alphabet’s balance sheets show growing income from the company’s hardware business, which includes its Pixel phones as well as devices like the Google Home line of smart speakers. “Other revenues,” a category that includes both Google’s cloud business as well as its hardware revenue, grew to $4.69 billion, from $3.4 billion in Q4 of 2016.

“We are pleased about the momentum in our hardware business,” said Alphabet and Google CFO Ruth Porat during the company’s earnings call. Google CEO Sundar Pichai added that device shipments during the fourth quarter had more than doubled year-over-year, and that the company sold “tens of millions” of Chromecast and Google Home devices in 2017.

Executives also once again called out YouTube as a key contributor to Google advertising revenue. That’s despite a renewed backlash over inappropriate content and brand safety, which dogged the video service in late 2017. “There have been concerns, and we are working really hard to address them,” acknowledged Pichai in a reference to recent changes to YouTube’s advertising policies. “The feedback we have received from advertisers and creators so far has been really positive,” he said about these changes.

Popular on Variety

More Digital

  • Ann Sarnoff Warner Bros

    Ann Sarnoff Formally Takes Reins of Warner Bros. as CEO

    The Ann Sarnoff era at Warner Bros. has begun. Sarnoff formally took the reins as Warner Bros. chair-CEO on Thursday, two months after she was appointed to the post. Sarnoff told employees in a memo that she has been impressed by the company’s track record during the past year amid a period of upheaval for [...]

  • YouTube TV Adds Subscription Options for

    YouTube TV Adds Subscription Options for AMC Networks' Acorn TV, UMC

    Google’s YouTube TV now offers two more add-on channels to subscribers, under an expanded pact with AMC Networks: British TV service Acorn TV and UMC (Urban Movie Channel), which features a selection of black TV and film titles. Acorn TV’s add-on channel is now available via YouTube TV for $6 per month and UMC is [...]

  • homepod-white-shelf

    Apple Said to Prep Cheaper HomePod for 2020

    Apple is getting ready to introduce a cheaper version of its HomePod smart speaker in 2020, Bloomberg reported Thursday. The company is also working on a new version of its AirPod headphones for next year, according to Bloomberg. Apple didn’t immediately respond to a request for comment. The new version of the HomePod is said [...]

  • Eminem Publisher Sues Spotify, Claiming Copyright

    Eminem Publisher Sues Spotify, Claiming Massive Copyright Infringement

    Eight Mile Style, a publishing company that holds administration rights to Eminem’s early catalog, filed a major copyright infringement lawsuit against Spotify late Thursday, claiming that the streaming giant has no license to host about 250 of Eminem’s songs, while also taking aim at the Music Modernization Act, the federal law enacted last year to [...]

  • iQIYI headquarters building in Beijing

    China’s iQIYI in Talks for Indonesia Expansion

    Chinese streaming firm iQIYI is in negotiations to expand further into Southeast Asia through a venture with Indonesia’s Media Nusantara Citra. iQIYI announced its first step outside Chinese-majority territories in June, when it revealed a linkup in Malaysia with pay-TV leader Astro. It also operates in Taiwan. In April, the company said that it planned [...]

More From Our Brands

Access exclusive content