Google parent Alphabet on Monday reported a sharp drop in profit over the past quarter as it ramped up spending for a wide array of new gadgets and services.
Profit dipped 23 percent from a year ago to $7.1 billion as revenue grew 20 percent to $40.5 billion for the California tech giant and internet search leader.
Shares in Alphabet fell 1.1 percent in after-hours trade on the weaker-than-expected profits.
Digital advertising on Google continued to be the primary money-maker for Alphabet — accounting for some $34 billion in revenue.
Industry tracker eMarketer forecast that Google will generate $105.33 billion in net digital ad revenue this year, taking a 32 percent share of the worldwide digital ad market.
“Alphabet continues to show strong growth in ad revenues, even as CPCs (costs per click) were down again year-over-year, showing strong continued growth in impressions and paid clicks,” said eMarketer principal analyst Nicole Perrin.
The analyst added that the cost of acquiring internet traffic appeared by be stabilizing, which is a good sign for Alphabet profitability.
Meanwhile, the earnings report showed that revenue from other sources including cloud computing climbed more than 40 percent to $6.4 billion.
Alphabet has been pumping money into research and development for artificial intelligence, cloud infrastructure, and launching new Pixels smartphones and other hardware.
“We continue to invest thoughtfully in talent and infrastructure to support our growth, particularly in newer areas like Cloud and machine learning,” said Alphabet chief financial officer Ruth Porat.
Phones and cars
The company, which faces antitrust reviews over its dominance of internet search on both sides of the Atlantic, has been seeking to diversify its business with more hardware and new services.
Losses on “other bets” such as self-driving cars and delivering internet services from high-altitude balloons swelled to $941 million in the quarter, compared to a $727 million loss in the same period a year earlier.
Google chief Sundar Pichai said in a statement: “I am extremely pleased with the progress we made across the board in the third quarter, from our recent advancements in search and quantum computing to our strong revenue growth driven by mobile search, YouTube and Cloud.”
The results were impacted by a one-time charge of $549 million linked to a tax settlement with French authorities, according to Porat.
Alphabet said it set aside nearly $1.6 billion as a provision for income taxes, up from $891 million last year, and that its effective tax rate would be 18 percent, double that from a year earlier.
Capital expenditures included a billion dollars spent to buy buildings in the Silicon Valley city of Sunnyvale and a pair of buildings in Amazon’s home city of Seattle, according to Porat.
Major areas of expense in the quarter were associated with datacenters to support the heavy demand for cloud computing power and costs of content for YouTube subscription streaming services.
Alphabet also spent money to bolster its line-up of Pixel smartphones, which showcase the capabilities of its Android mobile operating system and keep its services in tune with lifestyles increasingly tapping into the internet on the go.
A jump in the number of employees to 114,096 from 94,372 at the end of the same quarter a year earlier drove up expenses, with hiring focused on adding engineering talent for product innovation, according to Alphabet.
The internet titan ended the quarter with $121 billion in cash on hand as rumors arose that it is considering buying San Francisco-based activity-tracking wristband maker FitBit due to its strengths in “wearable computing.”