Strong growth in ad sales on Google search and YouTube were not enough to offset a surge in costs at parent Alphabet Inc, which shrank the first-quarter operating margin, leaving shares flat after hours on Monday.
Alphabet got a boost from how it values investments in Uber Technologies Inc and other start-ups. That accounting change and a one-time benefit cut its effective tax rate nearly in half.
Investors are uncertain about future profit at Alphabet as the company navigates the move to a phone-based computing world and invests in small, fast-growing initiatives from self-driving cars to selling hardware and cloud computing services. The quarterly results did not clarify the outlook.
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Alphabet’s operating margin of 22 percent, down from 27 percent a year ago, missed expectations because of the growth in expenses.
Alphabet is investing to keep pace with Amazon.com Inc and having to share more of its revenue with phone and browser makers, Atlantic Equities analyst James Cordwell said.
“The jump in profits is purely due to one-time items,” he said.
Longer-term capital expenditures nearly tripled to US$7.3 billion in the first quarter from US$2.5 billion a year ago.
Still, worldwide sales increased to US$31.1 billion, above analysts’ average estimate of US$30.3 billion, according to Thomson Reuters I/B/E/S.
Those ad sales showed investors that there were no immediate signs that rising global privacy concerns had affected profits, even as concerns over Facebook Inc’s use of privacy cast some suspicion on Google.
Officials across the world seek to force changes in Google’s business practices, such as giving customers more control over their data.
Google CEO Sundar Pichai on Monday told analysts: “It’s important to understand that most of our ad business is search, where we rely on very limited information, essentially what is in the keywords to show a relevant ad.”
Alphabet’s quarterly profit of US$9.4 billion, or US$13.33 per share, exceeded estimates of US$6.56 billion, or US$9.28 per share, according to Thomson Reuters I/B/E/S.
About US$2.4 billion in earnings were attributable to a new accounting method for unrealized gains in Alphabet’s investments in start-ups, such as Uber and Airbnb Inc.
Alphabet now records estimates of the current value of its start-up investments rather than waiting to report income once it has opportunity to sell those shares.
That change and a one-time benefit drove down the effective tax rate in the quarter to 11 percent from 20 percent a year earlier.
Excluding investment-related gains and other items, adjusted earnings were US$9.93 per share.
Google had several one-time costs, including acquiring 2,000 employees in Taiwan for US$1.1 billion from HTC Corp (宏達電) and moving up when it awards equity to employees.
Continuing cost increases came from acquiring streaming rights for YouTube’s new TV service and marketing new products.
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