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Google prints money for Alphabet to stuff into Uncle Sam's pockets: $10bn blow from Donald Trump's tax shakeup

Still made a huge profit in 2017

Google-parent Alphabet suffered a $3bn loss of the final quarter of 2017 after handing over $9.9bn to Uncle Sam due changes in the US tax system.

Despite that hit, Alphabet is still very profitable [PDF] as you'd expect for a biz with near monopolies in ads, search and mobile phone operating systems: it would have banked $6.8bn in profit for the quarter without the taxation charge.

In a bumper 2017, the California giant recorded full-year revenues of $110.9bn, the first time it has broken the $100bn mark.

"This year is very special for us as it has been 20 years since Google was founded," said the Chocolate Factory's CEO Sundar Pichai. "Many things have changed but our mission of making the worlds information searchable will continue. Becoming a more AI-focused company will help that proceed."

Google's next phase of growth will be based on three pillars he said: cloud, YouTube, and hardware. On the cloud front, Google broke a milestone by having its first billion-dollar-quarter in terms of cloud services sales, and claimed it is now the fastest growing provider of public cloud services in the market – which isn't too difficult when you're not the market leader.

And by the way, that $1bn is a fifth of Amazon's $5bn-a-quarter AWS operation.

The Chocolate Factory also claimed the number of Google cloud deals that bring in more than $1m had more than tripled from 2016 to 2017, and that there are 4m paying G Suite customers.

On the YouTube front, business was good, Pichai said. More than 1.5 billion people a month use the site, which is now localized in 90 countries. This year Google signed deals with Universal and Sony to carry music videos, and inked a contract with concert-gougers Ticketmaster.

Google's hardware division has an excellent fourth quarter, with sales up strongly as you'd expect after a major product launch and in the run-up to Christmas. Pichai said he was "especially excited" about the Google Home range of devices, and said shipments of all hardware have doubled since this time last year.

Here's a summary of the fourth quarter results, the three months to the end of December 2017:

  • Revenue: For the quarter, Alphabet revenues were $32.3bn, up 24 per cent from this time last year. Analysts were expecting slightly higher figures, however, and that was reflected in a slightly lowered stock price after the results were announced.
  • Net income: Alphabet made a profit of $5.3bn 2016's Q4, but in 2017, it posted a Q4 loss of $3bn loss due a hefty tax bill from bringing overseas cash back to America. Google has a lot of money abroad – as much as $101bn – due to its ahem interesting financial arrangements, and even with Congress passing a President Trump-championed tax cut on repatriated dosh and corporate profits, the ads goliath still took a sizable hit importing moolah to the States. Well, more accurately, it will bring the money back at some point in the future, it's just paying the cost now.
  • EPS: To reflect the loss this quarter, diluted earnings per share were -$4.35, compared to $7.56 this time last year. Normal EPS should return next quarter, and this year Google will spend $8.6bn buying its own shares to support the stock price and mollify shareholders.
  • Google: Google is, and will probably always be, Alphabet's cash cow. It reported revenues of $31.9bn for the quarter on the back of stonking results in search, both mobile and desktop.

    Traffic acquisition costs (TAC) were up, costing the firm $6.5bn, or 24 per cent of its advertising revenue. Chief financial officer Ruth Pora stated that the growth in TAC would slow in the first quarter of its fiscal 2018, but will continue to rise over time.

  • Other bets: Google's long-term future bets pulled in revenues of $409m for the quarter, nearly double that of last year. The division lost $916m, which was a smaller sum than this time last year. Porat said this was partially down to lower capital expenditure costs with the slowing down of Google Fiber rollouts.

Overall results for the year were good, but again not as good as Wall Street was expecting. Here they are the figures for the full year:

  • Revenue: This year Alphabet posted sales of $110.9bn, a record for the company and up from $90.2bn in 2016.
  • Net income: It was a profitable year for Alphabet, with a profit $12.7bn. Not quite up to Apple's levels of money printing but not bad, although analysts had been expecting a higher figure. That includes the cost of the $2.7bn fine levied against Google by the European Union. On that note Pichai said the firm was having "constructive conversations with regulators."
  • Headcount: Alphabet employs 80,110 people around the world, and Pichai said the organization plans to expand overseas and in nine US states. Google will also open five new data centers across the US in the coming year.

Google also named its new chairman to replace the outgoing Eric Schmidt. The lucky winner is John Hennessy, who has been a board member since 2004 and is probably best known as the founder of MIPS Computer Systems. ®

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