Google beats, stock soars

Larry PageGetty / Justin SullivanAlphabet CEO Larry Page

Google parent company Alphabet just released its Q4 earnings!

The company beat on both the top and bottom line, sending the stock up more than 8% after hours, though it’s now hovering at around ~5% up.

Here are the most important numbers:

  • Q4 adjusted earnings per share (EPS): $8.67 vs analyst expectations of $8.09
  • Q4 Revenue: $21.32 billion vs analyst expectations of $20.77 billion (and up 18% year-over-year)

This was the first quarter that Alphabet broke up its quarterly results into two categories: “Google” and “Other Bets.”

Other Bets revenue, which includes projects like self-driving cars and internet bearing balloons was $448 million with operating loss of $3.56 billion.

For perspective, Alphabet says that revenue was $327 million with operating loss of $1.9 billion in 2014.

Analysts had been expecting anything losses between $1.5 billion and $5 billion for “Other Bets,” so this falls within that range. On the earnings call, CFO Ruth Porat highlighted Alphabet’s connected home business, Nest, super-fast internet business, Fibre, and its bio-tech business, Verily, as the main drivers of revenue in Other Bets. Fibre, she said, was the most costly project.

Other important numbers:

  • Cost per click (how much Google can charge for its ads) was down 13% year-over-year (analysts expected them to be down 6.1% year-over year). Google has said for the last several quarters that CPC is being driven down not by the shift to mobile — like analysts have often said — but by the growth of YouTube’s TruView ads, which it still can’t charge as much for.
  • Paid clicks (how many times people click those ads) were up 31% (analysts expected them to be up 22.4% year-over-year )
  • Google’s Other Revenue, which includes its Google Play app store and cloud business, were $2.1 billion, up 24% year-over-year
  • Google websites revenue was $14.9 billion, up 20% year-over-year, while Google’s networks revenue was $4.14 billion, up 7% year over year

YouTube falls within websites revenue, and in the earnings call CFO Ruth Porat attributed YouTube, mobile search, and programmatic as being the big drivers of its revenue growth, with mobile the biggest driver overall.

Here’s a look at Google’s revenue vs the Other Bets revenue:

Here’s a look at the the company’s operating expenses:

Alphabet’s headcount rose to 61,814, up from 53,600 in Q4 2014 (and 59,976 last quarter), primarily due to teh addition of engineers and project managers. Total capital expenditures for the quarter were $2.1 billion, down from $3.55 billion year-over-over year. The majority of that capex goes to Google, Porat said on the call.

Operating cash flow was $6.4 billion with free cash flow of $4.3 billion.

Here are some other highlights from the call:

Porat said that Google’s non-GAAP operating expenses were $6.6 billion, up 14% year-over-year, primarily driven by R&D expense, particularly from Other Bets.

When talking about Google revenue, she said that YouTube advertising was growing at a “very signficant rate” and that mobile search around the holiday season drove revenue momentum.

In terms of “Other Bets,” she said that a lot of Google’s investment went to funding Fibre, its super-fast internet efforts. For revenue, she said that Other Bets was primarily driven by Nest, Fibre and Verily.

“My main point here is that we remain on a journey and it is still early days,” she says. “We are working diligently to build additional businesses that create long-term revenues, profits, and value.”

She also said, however, that some of Alphabet’s biggest moonshots are actually within Google itself, highlighting efforts like machine learning, its cloud business, virtual reality, and emerging markets.

For investors, that means that they shouldn’t expect Alphabet to stop investing money in Google.

Google CEO Sundar Pichai says that this quarter Gmail joined list of Google products with over 1 billion users. Others with over a billion users are Search, Android, Maps, Chrome, YouTube and Google Play.

Pichai also highlighted two of Google’s main goals: to bring its technical strengths to all its products and to make sure it’s solving big problems.

He also gave an update on YouTube, saying that people watch “hundreds of millions of hours” on YouTube everyday. FB just announced in its earnings that people watch 100 million hours every day.

Of Google Play, he said that spend per buyer grew by more than 30% globally compared to 2014 and that there’s “great buzz” at Google around the cloud business. Google Cloud Platform is already used by more than four million applications.

“We’re becoming very competitive,” he said. Continuing: “I expect to get significant traction in 2016.”

When asked about YouTube and its effect on cost-per-click, Porat said that TruView ads on YouTube would continue to affect the CPC. But also that it’s “still early innings” for YouTube and that the company is continuning to tryg to get larger offline budgets onto YouTube (aka, stealing TV ad dollars).

She also said that, generally, CPC is decreasing simply because the number of clicks is increasing so much.

“The CPC trend represents teh fact that the denominator is growing faster than the numerator,” she said.

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