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January 27, 2017

Google’s Alphabet suffers drop in shares after Q4 profits miss target

Despite growth across almost all areas of it's business Google parent company, Alphabet, has performed below estimates in the fourth quarter.

By Joe Clark

Alphabet, the Google parent company, has posted strong fourth quarter profits, though slightly lower than initial estimates.

Analysts were left disappointed by Alphabets Q4, with the tech giant’s shares almost dropping 3% following missed forecasts. This is despite Alphabet posting a 8% rise in profits to $5.3bn.

Revenue for the last three months of 2016 hit $26bn, a rise of 22% from the corresponding quarter a year ago. The bulk of that revenue came from Google’s ad business, with revenue rising 17.4% to $22.40bn.

Last year Alphabet was hit by a higher tax rate which it cites as one of the reasons for missing estimates.

Despite this the company maintains a positive outlook and believes that it has diversified it’s business tremendously and the growth in the sales of it’s hardware and cloud services point to a strong possibility of higher earnings in future.

In a statement Alphabet chief financial officer Ruth Porat said: “Our growth in the fourth quarter was exceptional,”

“We’re seeing great momentum in Google’s newer investment areas and ongoing strong progress in Other Bets.”

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alphabetThe smart speaker ‘Google Home’ and the company’s new flagship mobile device, Google Pixel, performed well over the holidays and eMarketer Research firm estimates that Google will raise approximately $60 billion in search ad revenue this year, 58.8 percent of the current market.

However, Alphabet’s ‘moonshot’ investments in cutting edge technology, such as self driving cars, also saw a $1.1 billion fall this quarter, compounding it’s yearly loss to $3.6 billion in 2016.

In previous years Alphabet was taxed 19% but this year the tax rate rose to 22%, which helps to explain why revenue totals were smaller than expected despite the company’s growth.

In a statement to the Financial Times Analyst James Wang of ARK Investment Management said:”If you look above that, it’s business as usual,”

“There has been no margin compression in the actual business.”

 

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