Google's parent company watched its stock tumble in after hours trading yesterday after it fell short of Wall Street's earnings estimates.
The American tech giant reported mixed results for the last quarter of 2016 as it missed on earnings but outperformed on revenue. According to the report, Alphabet's (NASDAQ: Alphabet Class A [GOOGL]) earnings per share amounted to $9.36 while analysts were aiming for earnings of $9.67 per share. At the same time, revenues soared 22% from the year before and reached $26.06 billion, surpassing analysts' estimate of $25.22 billion.
The company said that the main revenue driver in the fourth quarter was a steady performance of its mobile search and video ads segments as well as rapid growth of its smaller businesses, which the company refers to as "Other Bets".
"Our growth in the fourth quarter was exceptional -- with revenues up 22% year on year and 24% on a constant currency basis. This performance was led by mobile search and YouTube. We’re seeing great momentum in Google’s newer investment areas and ongoing strong progress in Other Bets," Ruth Porat, CFO of Alphabet, said in the statement.
Other Bets have jumped 62% from the quarter a year before, demonstrating that Alphabet's gradual switch to other projects beyond Google's search engine and everything that comes with it is starting to yield results. In Q4 of 2016, Other Bets made $262 million in revenue, as compared to $150 million in the last quarter of 2015 while the segment's losses also significantly declined from last year, said TechCrunch.
The business segment that was normally referred to as "other revenues" and remained largely unnoticed in the last years, includes some of the company's newest products and initiatives. Other Bets mostly include hardware products like Google's newly-released Pixel smartphones, virtual reality headset Daydream View, Nest thermostats as well as Google Home, a voice-controlled device competing with Amazon's (NASDAQ: Amazon.com [AMZN]) Echo, among others. An analyst Neil Doshi said that Google could have sold as many as 1 million Pixel phones in Q4, since the exact sales figures were not disclosed, reported CNBC.
TechCrunch said that even though revenues coming from Other Bets still could not be compared to those generated by Alphabet's main business, it showed what markets Google could target in the future since the company was capable of growing revenues in those minor segments already now. Ruth Porat mentioned that the full-year revenue of Other Bets amounted to $809 million, which is more than 80% higher than a year before. Business Insider added that one of Google's projects included in Other Bets, a health technology company Verily, received a hefty $800 million investment from Singaporean investment company Temasek just a few days ago.
However, Alphabet's stock still tumbled more than 2% in extended trading as investors did not welcome the news of missed earnings target, despite impressive revenue growth. The analysts attributed these mixed results to significantly increased tax spendings, which jumped from a 5% in Q4 of 2015 to as much as 22% this quarter. On top of that, USA Today mentions that Google has been heavily investing in some of its new businesses such as cloud computing, hardware as well as Google Play, what also occupied a portion of funds.
TechCrunch added that yesterday's drop in Alphabet's stock price could mean that there was quite some uncertainty among investors about whether Google was moving in the right direction, considering that the company's advertising value was on decline. This could be explained by the company's latest attempt to move beyond its search engine advertising business that has traditionally generated most of the cash. CNBC mentioned that Google's costs-per-click fell as much as 16%.
Considering that for a company of Alphabet's size a 2% drop in stock price is quite significant, some analysts said investors should see it as a good "buy" opportunity.