Despite earnings beat, Google shares slip on higher spending

By Sarah Min

/ MoneyWatch

Google fined $57M under Europe's data law

Google parent Alphabet beat Wall Street earnings expectations across the board Monday, but higher spending on costlier businesses like YouTube and cloud services spooked investors. Google shares slid around 3 percent in Monday after-hours trading.

Alphabet reported net income of $8.95 billion for the fourth quarter, with earnings per share coming in at $12.77, exceeding analysts' forecasts of $11.08 per share. It reported $39.3 billion in revenues for the fourth quarter, up 22 percent from the previous year, beating expectations of $38.9 billion.

While Alphabet relies on Google's advertising business to generate profits, YouTube and cloud computing are costlier operations than its traditional desktop businesses. In addition to running into increased advertising costs on mobile, advertising commissions that Alphabet pays other companies to direct people to its search, grew to $7.4 billion from $6.5 billion a year ago. The company also hired more engineers for its Google Cloud Platform in the fourth quarter.

Scandals and breaches

The latest earnings report showed that Google could earn plenty of money despite going through a year that ended with a troubled second half, racked with data privacy issues and sexual harassment scandals that inspired an employee walkout at Google.

In October, a New York Times report revealed that Google paid $90 million in exit pay to an executive charged with misconduct. It also announced two bugs in October and December that exposed user data, the first breach exposing 500,000 users and the second one exposing 52.5 million users.

After peaking in July, Google shares have fallen back to just above where they were trading early last year.

Expanding cloud services

How well Google fares with investors will depend on how aggressively the tech giant tackles cloud computing services in the next year, either organically or through acquisitions.

While both Microsoft and Amazon emerged as early leaders in cloud computing, Google has remained a distant No. 3, but it has a legitimate opportunity to be a more significant player, according to Daniel Ives, research analyst at Wedbush Securities.

"Advertising continues to be the crux of what they do, but when you look at cloud, that's a major growth area for Google," Ives said.

All eyes are on Thomas Kurian, the recently hired cloud services executive who's attempting to turn the Google Cloud Platform into an enterprise business. Kurian oversaw product development at Oracle but left in September amid rumors he had a falling out with Executive Chairman Larry Ellison.

Noted Ives: "2019 will be a fork in the road situation for Google Cloud."

First published on February 4, 2019

© 2019 CBS Interactive Inc.. All Rights Reserved.

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