Google parent Alphabet (GOOG) reported another strong set of financial results Thursday, beating Wall Street’s fourth quarter revenue estimates, which grew 22% year over year, thanks to the company’s continued dominance in advertising.
Over the past couple of quarters, the Mountain View, Calif.-based tech giant has been working to offset declining mobile advertising value with higher clicks. The rate of revenue and earnings growth suggests that this strategy continues to pay off.
In the three months that ended December, Alphabet reported a net income rose to $5.33 billion, or $7.56 per, up from $4.92 billion, or $7.06 per share, a year earlier. On an adjusted basis, when taking out one-time gains and costs, earnings were $9.36 per share, which misses estimates of $9.64 per share. Fourth quarter revenue rose 22% to $26.06 billion, easily topping Street forecast of $25.23 billion.
“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,” said CFO Ruth Porat in a statement. “We’re seeing great momentum in Google’s newer investment areas and ongoing strong progress in Other Bets.”
Indeed, advertising revenue — up 17% to $19 billion — remains the company’s bread-and-butter business, accounting for some 90% of revenue. Google has, however, begun to show strength is its “Other Bets” — a segment that includes autonomous vehicles, virtual/augment reality headsets, its cloud business and, more recently, its smartphones. Revenue in that group came in at $262 million, surging 75% year over year from $150 million a year ago.
Google’s cost-per-click, a key metric determining the value of an ad, fell 11% year-over-year this quarter. But aggregate paid clicks increased 20%, showing that the management continue to find ways to offset the decline. As have been the case for some time, the primary growth driver continues to be the strength in search and YouTube. Notably, Google Cloud, which hopes to compete with Amazon (AMZN) and Microsoft (MSFT), has begun to show meaningful revenue growth.
Google websites revenue rose 20% to $17.9 billion, while Google Network revenues increase 7% to $4.4 billion. As with the strong showing the third quarter, paid clicks on Google websites were up 43% year over year. Alphabet did not provide a forecast, but the consensus first-quarter 2017 estimates call for EPS of $9.34 on revenues of $23.74 billion. For the full year analysts forecast EPS of $41.07 on revenues of $104.07 billion.
Alphabet stock traded lower on the report, down by about 2.5% at $834 in after-hours trading. I see this as a solid buying opportunity. With some patience, GOOGL stock should reach $1,050 in 2017, delivering 23% returns.
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