Google revenues up by $5bn to $26bn - but profits rise by only $400m

Pixel smartphone helps boost Google's revenues, a lot more than its profitability

Alphabet, the holding company of Google and its many 'moonshots', has announced a surge in revenues from $21bn to $26bn in the fourth quarter of 2016, partly thanks to sales of its new Pixel smartphones. Profits weighed in at $5.3bn, but that represented a less spectacular increase of $400m on the same period in 2015.

As a result, the company's share price fell as analysts had expected better profitability from the internet giant.

Indeed, as usual, almost all this revenue came from Google's core advertising businesses, which accounted for $22bn of the $26bn total.

Google chief financial officer, Ruth Porat, said that the figures underlines strong ad growth in several core areas: "This performance was led by mobile search and YouTube."

One core reason Alphabet's profits were not as strong as they could have been was due to its Other Bets division. It brought in just $262m in revenue, up from $150m in the same period last year.

However, the bigger issue is that its operations cost the company $1bn. This is a small improvement on the $1.2bn it lost in the same period the year before, though, but it may take investor some convincing the division is worth ongoing losses when revenues remain so low.

One better-performing growth area though was its ‘Other revenues' stream, which includes its Cloud Platform and its hardware offerings, specifically the Pixel and Pixel XL smartphones that were unveiled in the quarter.

This is likely to account for the huge 62 per cent increase in the division, from $2.1bn in the fourth quarter of 2015, to $3.4bn this year.

Furthermore, it is likely some of the potential profits Google could have banked were spent on the marketing around the device, which has been heavily promoted as Google's first major foray into the smartphone market with its own brand device.

Google will perhaps hope that it can reduce these costs over time while still growing revenues in this area as it looks to take on Apple in the smartphone market.

Despite the ongoing losses in Other Bets Porat said the company was happy with its performance in its other business areas outside Google's advertising strength.

"We're seeing great momentum in Google's newer investment areas and ongoing strong progress in Other Bets."

Google's Q4 statement also revealed its headcount grow by almost 20 per cent between the fourth quarters of 2015 and 2016, from 61,814 to 72,053.