Alphabet 2018 results: 23% growth, profit squeeze from investment

Alphabet – the conglomerate that includes Google and the search giant’s cloud business – grew revenue 23% in 2018, and stoked up R&D investment

Alphabet has announced a full-year net profit of almost $31bn on $136.8bn of revenue for 2018.

A fourth quarter outlay on research and development of almost $6bn, and a full year of EU fines of just over $5bn ate into revenue, and seem to have frightened investors, who wiped some 3% from its share price. Nevertheless, the company increased revenue by 23.4% from 2017 to 2018.

Overall, for the year, Alphabet, the holding company of Google, spent $21.4bn on research and development, up 29% from $16.6bn in 2017.

In an earnings call with financial analysts, as transcribed on the Seeking Alpha financial news website, Ruth Porat, Alphabet’s chief financial officer, said investment in machine learning was a factor in the company’s increase in investment.

“We’ve talked a lot about the importance of machine learning, and it’s a key component of incremental investment – particularly in capex [capital expenditure] for technical infrastructure to support the existing businesses, but also the newer ones, and that’s flowing through here,” said Porat.

Google’s Cloud Platform business – a suite of public cloud computing services – saw, she said, the biggest increase in headcount in both technical and sales roles. She said that in the segment that includes cloud, revenue was $6.5bn, up 31% year-over-year.

Sundar Pichai, Alphabet’s CEO, added commentary on the cloud business, thanking former cloud chief Diane Greene for her “leadership over the past three years”.

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The new CEO of that business is Thomas Kurian, formerly a leading executive at Oracle and touted as a figure to possibly make Google more enterprise-savvy.

“Google Cloud is a fast-growing multibillion-dollar business that supports 5,000 major global companies in every important vertical with a robust enterprise organisation,” said Pichai. “This was not the case just three years ago. What Diane and the team accomplished is phenomenal. Now Diane’s work is done and she has handed the reins to Thomas Kurian.”

The company had “more than doubled both the number of Google Cloud platform deals over $1m, as well as the number of multi-year contracts signed”, he said. “We also ended the year with another milestone, passing five million paying customers for our cloud collaboration and productivity solution G Suite.”

Pichai cited the Telegraph Media Group as a UK customer for Google Cloud, and attested to “strong growth in all our major geographies and industries this quarter”.

“In financial services, we signed agreements with two of the top financial institutions in the US to help them transition their business to Google Cloud with our highly secured solutions,” he said.

“Across Europe, we’ve invested more than €4.3bn in five datacentres since 2007. In the fourth quarter, we announced a new datacentre coming in Denmark.”

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