Google paid $7.4 billion to acquire traffic during the fourth quarter

Ann Santiago
February 6, 2019

But the deeper worry is that despite the many things that Google and other companies beneath the Alphabet aegis do, it remains, at heart, a display advertising business.

Alphabet's fourth quarter revenue rose 22 per cent from a year ago to $39.28-billion, compared to the average expectation of $38.93-billion among analysts tracked by Refinitiv. Traffic acquisition costs - the money it pays to companies like Apple to be the default search engine on the iPhone - continue to eat up a good chunk of that advertising revenue, with Google spending $7.44 billion, or about 23 percent of its ad revenue, on getting eyeballs.

"With great opportunities ahead, we continue to make focused investments in the talent and infrastructure needed to bring exceptional products and experiences to our users, advertisers and partners around the globe", CFO Ruth Porat said in the earnings release. It revealed an operating margin of 21 percent for the fourth quarter, which was lower than the projected 22 percent margin and the 23 percent margin it reported in Q4 2017.

Other revenue for Q4 2018 came in at $6.4 billion compared to $4.6 billion the same quarter a year ago.

Alphabet is relying on its ad business to support sales and profit growth as it develops new offerings such as cloud services and consumer hardware.

Google's full-year operating margin fell by more than 2 percent from Q4 2017, representing a far larger decline than the overall business. Twelve analysts surveyed by Zacks expected $31.28 billion.

The company has authorized a plan to buy back an additional $12.5-billion worth of its shares, Porat also said.

Of that figure, Google's advertising revenues represented the company's greatest source of income, totalling approximately $32.64 billion Dollars (roughly $42.83 billion CAD) in Q4 2018. Facebook results beat Wall Street estimates last week.

Concerns appear to be around how much Google is able to charge advertisers for ads.

While Alphabet had a mostly positive earnings report, there were misses for the tech company.

Other businesses, such as health venture Verily and self-driving start-up Waymo, were more disappointing at $154 million in revenue.

Analysts said Google's core advertising business is starting to plateau, an indication of stiffening competition.

FILE PHOTO - The Google name is displayed outside the company's office in London, Britain November 1, 2018.

Losses from other bets almost doubled over the year to $1.3bn from $748m a year ago. The company's share count rose previous year by 1% to about 701 million.

Cloud engineers and sales professionals also made up the bulk of the 4,000 employees it hired during the quarter, Porat said.

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