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Alphabet breaks out YouTube and Cloud financials for the first time as Google's overall revenue slowdown misses Street targets

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Alphabet on Monday issued its first earnings report since naming Sundar Pichai CEO.
REUTERS/Albert Gea
  • Alphabet, Google's parent company, reported its fourth-quarter results on Monday.
  • The company beat Wall Street's earnings-per-share expectations handily, thanks to a tax rate that was much lower than expected, but it fell shy of analysts' revenue forecasts.
  • Alphabet also offered some long-hoped-for financial details about its YouTube and Google Cloud businesses.
  • Visit Business Insider's homepage for more stories.

Alphabet offered some good with some bad on Monday.

The Google parent company's fourth-quarter revenue fell short of Wall Street's forecasts as revenue growth in the company's advertising business slowed in the final three months of the year. But the company posted a big beat on the bottom line, thanks to a much lower tax rate than analysts were expecting.

And perhaps more importantly for many investors and analysts, it finally offered some long-awaited financial details on its YouTube and Google Cloud businesses.

The financial revelations marked a major move by CEO Sundar Pichai in his first quarterly report to investors since taking the reins of Alphabet from founders Larry Page and Sergey Brin in December.

But while the revenue figures for YouTube and Google Cloud provided long-awaited insight into two fast-growing businesses, investors focused on the sluggish overall growth at Google, sending the stock down $57.94, or 3.90%, to $1,428.00 in recent after-hours trading.

Here's what the company reported and how that compared with what analysts were expecting and the company's prior-year results:

  • Fourth-quarter 2019 revenue minus traffic acquisition costs (TAC): $37.57 billion. Wall Street had predicted $38.39 billion in revenue on that basis. In the fourth quarter of 2018, Alphabet posted $31.84 billion.
  • Fourth-quarter 2019 earnings per share (EPS): $15.35. Analysts were expecting $12.50 a share. In the year-ago quarter, the company earned $12.77 a share.
  • First-quarter 2020 revenue minus TAC (analyst forecast): $35.27 billion. Per usual, the company didn't offer any forecast for the period. In the same period a year ago, Alphabet posted $29.48 billion in sales on this basis.
  • First-quarter 2020 EPS (forecast): $12.31. The company didn't offer any earnings-per-share guidance for the upcoming quarter. Alphabet earned $9.50 a share in the first quarter last year, a period in which it recorded a $1.7 billion fine from the European Commission.

In the quarter, Alphabet set aside only $33 million for taxes, down from $1.1 billion in the same period a year earlier. On a conference call with analysts and investors, Ruth Porat, the company's chief financial officer, said the company's tax rate was affected by several onetime items, including the resolution of a multiyear audit.

Had the company's effective tax rate been the same as it was in the fourth quarter of 2018 — about 11% — it would have set aside about $1.2 billion in taxes. That would have cut its earnings per share to about $13.68.

And the effect of the tax benefits was even greater than that. Those onetime items likely added about $3.20 a share to Alphabet's earnings, Colin Sebastian, an analyst who covers the company for Baird, said in a research note on Monday. If that windfall was taken away, the company would have missed analysts' expectations, he said.

The report marked the first earnings update Alphabet's given since Sundar Pichai took over from cofounder Larry Page as the company's CEO. Pichai didn't hesitate to put his own stamp on them.

In addition to the earnings and revenue numbers, Alphabet for the first time broke out the revenue posted by its Search, YouTube, and Google Cloud businesses. Investors and analysts had long urged it to disclose those numbers, saying the company's stock and business could benefit from more transparency.

In 2019, YouTube brought in $15.1 billion in ad revenue. That was up 35.8% from 2018. Google Cloud, meanwhile, posted $8.9 billion in sales last year, up a healthy 53% from the prior year.

By contrast, Google's search and other ads business posted $98.1 billion in revenue in 2019, which was up a more modest 15% from 2018.

Alphabet's stock closed regular trading up $51.71, or 3.6%, to $1,485.94 a share. The company's share price is up more than 30% over the past year and hit an all-time high of $1,503.21 less than two weeks ago.

Get the latest Google stock price here.

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SEE ALSO: Alphabet doesn't reveal revenue for YouTube or Google Cloud. Here's why new CEO Sundar Pichai would benefit by being more transparent.

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