Alphabet Spending Spree Puts Investors on Edge

Alphabet Inc.’s substantial spending on video content, employees and facilities in the fourth quarter has left investors on edge, sending the US tech giant’s stock lower by more than 2 percent in after-hours trade.

While Google’s parent company reported market-beating profit and revenue in the quarter, its sharply higher spending made investors question whether the money flowing into Alphabet’s newer ventures will provide the returns that its search engine division has generated in the past.

Stock analyst George Salmon said while the core business is still growing impressively, the significant spending shows growth is not quite as capital-light as had been hoped.

Overall costs and expenses of the California-based conglomerate rose 26 percent from last year to reach $31.07 billion in the fourth quarter, while capital expenditures amounted to $7.08 billion, up 64 percent from the year ago.

Spending surged further due to Google’s efforts to increase staffing on its cloud computing unit, promote its consumer devices and YouTube subscription packages, as well as setting up office buildings in Silicon Valley and New York City.

Alphabet Chief Financial Officer Ruth Porat has told analysts that capital expenditures would shrink significantly this year, although the firm would keep on investing in long-term bets on artificial intelligence (AI) services, consumer hardware, and emerging markets.

Shares of Alphabet last stood 0.5 percent lower to $1,135.62. 

Finding New Streams of Revenue

Investors worried about the outlook of the Alphabet’s future growth, particularly in emerging markets, will not meet its previous rates, are hoping that the company’s other businesses will create new revenue flow.

Alphabet, however, did not provide any specifics on its other ventures. It gave away no clue as to when its autonomous car firm Waymo LLC will bring in noticeable revenue.

The tech group stated on October that Waymo had started revenue-generating rides within a small area of Arizona, although did not disclosed the company’s financials.

Analyst Jame Cordwell said for a growth company, investment should be applauded, but a lot of the additional expenditure is going into cloud where it is unclear whether there will ever be a return on that investment, adding that Google remains behind online retailer and rival Amazon.com Inc. in the cloud.

Google Chief Executive Sundar Pichai said the search engine’s cloud computing division last year has doubled the number of deals it secured worth over $1 million.

The cloud business’ G Suite productivity product now has 5 million customers, Pichai stated, rising from 4 million generated in the previous year’s first quarter.   

Alphabet has approved a plan to buy back an additional $12.5 billion worth of its shares, according to Porat.

HQBroker is here to give you a daily news roundup about the forex, commodities, technologies, automobiles, and economies. You can open an account now and make yourself updated with essential news in the market. Share your thoughts and experiences with us by commenting your HQBroker reviews.