Alphabet posts strong revenue growth, higher taxes hit earnings

Thu Jan 26, 2017 8:49pm EST
 
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By Julia Love and Anya George Tharakan

(Reuters) - Google parent Alphabet Inc posted fourth-quarter profit below analysts' estimates on Thursday, hurt by a higher tax rate, but analysts cheered the company's progress in diversifying its business beyond advertising.

While advertising still accounts for the lion's share of Google's revenue, rising 17.4 percent to $22.4 billion in the quarter, Alphabet Chief Financial Officer Ruth Porat underscored that the company is broadening its business - pointing to growth in hardware, app sales and the cloud business.

The company's other revenue, which captures such businesses, climbed 62 percent to $3.4 billion.

"We see tremendous potential ahead for these businesses, as well as in the continued development of non-advertising revenue streams for YouTube," Porat said on a call with investors.

The results were met with a mixed reaction from Wall Street, which sent shares down 2.2 percent to $838 in extended trade after closing at $856.98 on Nasdaq. Google faced a higher tax rate of 22 percent, compared to 19 percent for the year overall, contributing to the dent in profitability.

"If you look above that, it’s business as usual," said analyst James Wang of ARK Investment Management. "There has been no margin compression in the actual business."

Executives suggested that they are beginning to reap the rewards of their investment in hardware. Porat spotlighted the company's line of Nest smart home products, saying sales doubled during the key holiday period including Black Friday and Cyber Monday.

Google-branded hardware also showed promise as Google Home, a smart speaker, and the Pixel smartphone gained traction over the holidays, Google Chief Executive Sundar Pichai said during the call.   Continued...

 
A man holds his smartphone which displays the Google home page, in this picture illustration taken in Bordeaux, Southwestern France, August 22, 2016. REUTERS/Regis Duvignau