Google's spending worries investors

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Google's spending worries investors

Alphabet's fourth-quarter revenue and profit beat Wall Street's expectations on Monday but sharply higher spending, as it added data centres and marketed its services heavily during the holidays, worried investors.

The company's shares, which have risen almost 17 percent over the past six weeks, fell 2.3 percent to US$1114.60 in after-hours trading.

Partly because of the higher spending, Alphabet reported an operating margin of 21 percent in the fourth quarter, down from 24 percent a year ago.

Facebook's better-then-expected fourth-quarter results last week had lifted expectations for Alphabet as they suggested that concerns about a global economic slowdown may be overblown.

Alphabet's fourth quarter revenue rose 22 percent from a year ago to US$39.28 billion, compared to the average expectation of US$38.93 billion among analysts tracked by Refinitiv. About 83 percent of the revenue came from Google's ad system.

Alphabet had $31.07 billion in total fourth-quarter costs and expenses, up 26 percent from last year. Capital expenditures rose 64 percent compared to last year, up to US$7.08 billion.

A run-up in spending has reflected Google's efforts to boost staffing on its cloud computing division, promote its consumer devices and YouTube subscription packages and acquire office buildings in Silicon Valley and New York.

Quarterly profit was US$8.95 billion, or US$12.77 per share, compared with a US$3 billion loss a year ago. That compared to analyst estimates of US$7.69 billion, or US$10.87 per share.

The loss last year related to a one-time charge from new US tax rules, while earnings since then have benefited from new rules about valuing Alphabet's dozens of investments in external startups. Fourth-quarter earnings also benefited from a US$1.3 billion unrealised gain related to a non-marketable debt, Alphabet said.

(Reporting by Arjun Panchadar in Bengaluru; Editing by Anil D'Silva)

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