Google parent Alphabet delivered a better-than-expected holiday quarter earnings report on Monday, with some asterisks: The company’s numbers for the quarter benefitted from a one-time cash injection. High costs and lower margins also didn’t help to calm investors, who proceeded to send the company’s share price down around 3% in after-hours trading.
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 the company’s actual business grew less that its net income numbers may suggest.
Also notable: Alphabet’s other revenues, which include non-Google business, such as 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.
Google CEO Sundar Pichai didn’t share any concrete sales numbers, but told investors during the company’s earnings call on Monday afternoon that it had sold “millions” of devices during the quarter. He did share one small nugget meant to highlight the success of one of its newest devices: one in seven Google Home devices activated during the holiday season was a Google Home Hub, Pichai said.
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.
Pichai highlighted YouTube as one of the company’s success stories, saying the number of YouTube channels with more than 1 million subscribers nearly doubled in 2018. The number of creators making five-figure revenues or more with their channels grew by 40% during the year, he said.
Asked whether Google had any plans to respond to efforts from big-game publishers to sidestep app store fees, Pichai signaled that the company had no plans to reduce the cut it takes from Google Play. “There is a value exchange there, and it’s been the industry standard,” he said. “We’ll continue down this path.”