Alphabet Beats on Earnings, Hit with Costs

Alphabet Inc (NASDAQ: GOOGL) reported stronger-than-expected earnings and revenue for its fourth quarter. However, the company reported a 26% year-over-year rise in Q4 costs and expenses. Capital expenditures also increased 64% versus last year.

Earnings came in at $12.77 per share, as compared to $10.82 estimated. Revenue was $39.28 billion, surpassing the $38.93 billion expected. Traffic acquisition costs amounted to $7.44 billion, compared to the $7.62 billion projected by experts.

Cost per click on Google properties — which roughly measures the amount Alphabet charges advertisers for each ad served on its web sites — dropped 29% from last year and 9% from last quarter, which might be alarming investors concerned that Google's pricing power for ads is eroding.

Alphabet-owned Google is facing new pressure in digital advertising from Amazon's rising presence in the market and seeing heightened pricing pressure, at the same time its costs of doing business are rising.

Alphabet reported capital expenditures just north of $7 billion for the period, posting a much more expensive quarter than the $5.63 billion in capex that was projected.

The company reported an operating margin of 21% for the fourth quarter, lower than the 22% margin that was expected and the 23% margin it reported this time last year.

The company's core advertising business has hit something of a plateau. Advertising revenue grew 20% from last year's fourth quarter, to $32.6 billion, the same rate of growth as last quarter.

Shares in Alphabet retreated $2.77 early Tuesday to $1,130.03