Alphabet, whose principal business is Google, fell short on the top-line in the third quarter of 2018 but dramatically exceeded earnings per share expectations, turning in a net profit of $9.19 billion.
Alphabet Q3 revenue was $33.7 billion, up 21% year over year but below Wall Street consensus estimate of $34.04 billion. Earnings per share of $13.06 widely beat analysts’ EPS forecast of $10.42.
Alphabet stock dropped 3.5% in after-hours trading on the revenue miss.
“Our business continues to have strong momentum globally, led by mobile search and our many products that help billions of people every day,” Ruth Porat, CFO of Alphabet and Google, said in announcing the financial results.
Google ad revenue climbed 20%, to $28.95 billion for the third quarter, and operating income rose 10.6%, to $9.49 billion.
Alphabet’s cost of revenues increased 28% year over year, to $14.82 billion for Q3. Excluding traffic acquisition costs, cost of revenues was $7.7 billion, up 36% year over year, primarily driven by costs associated with Google data centers and content-acquisition costs primarily for YouTube, Porat said on Alphabet’s earnings call.
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The company’s R&D expense for the quarter was $5.23 billion, an increase of 24%, and general and administrative costs jumped 30% to $2.07 billion.
Earlier Thursday, the New York Times published a report that found Google protected and rewarded three high-ranking male execs who were accused of sexual misconduct, including Andy Rubin, the creator of Android, who received $90 million in severance after he was asked to resign over allegations he coerced an employee to perform oral sex on him.
In response to the report, Google CEO Sundar Pichai sent an email to employees Thursday saying that the company has terminated 48 employees for misconduct in the last two years, of which 13 were “senior managers and above” — and none got an exit package, CNBC reported.
Pichai didn’t address the New York Times report on the earnings call with analysts. In his opening remarks, Pichai started out by mentioning the celebration of Google’s 20th anniversary and recapping the tech giant’s recent hardware announcements, including the new Pixel 3 line of smartphones. He also called out YouTube’s announcement earlier this week to set aside $20 million for educational initiatives and cited “momentum” in the Google Cloud Platform business.
Alphabet’s employee base was 94,372 as of the end of September, up 21% year over year from 78,101 in Q3 2017. Hiring growth was seasonally higher in Q3 as the company brings on recent college grads, Porat said.
The company ended the quarter with $106.4 billion in cash and equivalents and marketable securities, and $3.99 billion in long-term debt.
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