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Somewhere, Google's financial bods are playing on repeat... What do you want from me? It's not how it used to be...

Full-year profit up 14% to $34.3bn, YouTube bringing in $15bn ad sales – and shares down

Google's parent Alphabet on Monday reported $162bn in revenue for its 2019 fiscal year, up 18 per year over year, and $46bn in revenue for its fourth quarter, up 17 per cent.

That was less than the $163bn and $47bn Wall Street analysts on average had expected, and the disappointment showed in an after-hours stock price decline of about four per cent.

Sundar Pichai, now CEO of Alphabet as well as Google, said on a conference call for investors that the internet giant for the first time is disclosing revenue for its YouTube and Cloud businesses.

"We are really pleased with the momentum we're seeing in Cloud," he said, promising continued investment in terms of resources and personnel to support long-term growth.

Making Google's Cloud revenue public will allow investors to better compare the company to rivals like Amazon Web Services ($10bn in its most recent quarter). Microsoft does not break its Azure revenue out from its Intelligent Cloud segment, which brought in $11.9bn in its most recent quarter.

"The big news is that Google is breaking out YouTube ad revenues for the first time," said Nicole Perrin, principal analyst at data biz eMarketer, in an emailed statement. "This is something investors have been looking for, but the information should also give advertisers valuable information about the importance of YouTube as a digital ad vehicle."

Coincidentally, the US Justice Department is said to be planning to meet a group of state attorneys general on Tuesday to discuss consolidating various antitrust probes of Google's advertising business.

Alphabet's main product lines reported [PDF] revenue as follows:

  • Google Search and other: $27.1bn for Q4, and $98.1bn for the year ended December 31.
  • YouTube ads: $4.7bn for Q4, and $15bn for the year.
  • Google Network Members' properties: $6bn for Q4, and $21.5bn for the year.

All told, Google's total ad revenue came to $38bn for Q4, and $135bn for the year. Due to the way Alphabet has previously reported its figures, it's tricky to tell which of the above is up or down on the year-ago period. Here are the numbers we can compare:

  • Google Cloud: $2.6bn for Q4, and $8.9bn for the year – the former up 53 per cent on Q4 2018, and the latter up 58 per cent on the $5.8bn brought in during 2018.
  • Google Other, which includes Google Play and Pixel, accounted for $5.3bn in revenue for the quarter, up 10 per cent, and $17bn for the year, up 21 per cent.
  • Other Bets, an Alphabet group that includes the internet Access group, Waymo, Loon, Wing, and Verily, reported revenues: $172m for the quarter, up 12 per cent, and $659m for the year, up 11 per cent. But the group's operating loss was $2bn, which is deeper than Q4 2018's $1.3bn loss.
  • Alphabet reported $9.3bn and $34.2bn for the quarter and year as operating income, up 13 per cent and 24 per cent respectively, representing operating margins of 20 per cent and 21 per cent respectively.
  • Net income came to $10.7bn for Q4 2019, up 20 per cent, and $34.3bn for the year, up 14 per cent.
  • Diluted earnings per share were $15.35 for Q4 2019 and $49.16 for the year.

On the earnings call, an analyst asked whether Pichai had considered revising Alphabet's business structure to further insulate profitable Google businesses from speculative ventures like Waymo that could become a legal liability – if its robo-cars started running over pedestrians, for example.

Pichai was non-committal but said he wants to make sure Alphabet is investing in the proper governance structures and will continue to evaluate them on a periodic basis. ®

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