Google revenue for Q4 2018 soars, but there’s a dark cloud on the horizon

A Google logo.

Alphabet just published its financial report for the fourth quarter of 2018. Google revenue soared even higher than Wall Street estimates, bringing in over $39.2 billion, representing a 22 percent increase as compared to the same quarter in 2017.

That totals $136.8 billion in revenue for 2018, up 23 percent over the whole of 2017.

Google’s revenue within each of its main segments grew in the previous quarter, including ad revenue, properties revenue, and even its “other” revenues, which includes things like Pixel devices and services like Google Cloud.

However, despite revenue beating expectations, Google stock still went down after the release of the financial report.

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The likely reasons for this are two-fold. The first reason is the fact that Google’s costs of doing business are going up. For example, traffic acquisition costs were higher this previous quarter than the same time last year. TAC refers to money Google spends to keep its top-dog status, such as the fees Google pays Apple to be the default search engine on iPhones.

The second reason — and likely the one causing the most concern — is that Google’s costs-per-click for its ad sales is going down. In fact, CPC went down 29 percent as compared to 2017 and nine percent compared to Q4 2017.

In other words, Google’s costs of running its business are going up while its competitors in the ad space are driving its margins down. That’s a bad combo.

A third, smaller reason for Wall Street to be a little nervous about Google’s report is the fact that Alphabet’s “Other Bets” category — which houses experimental projects like those stemming from Google’s X division — pulled in less money than Wall Street hoped.

There’s no question that Google’s revenue is very healthy. However, rising competition and costs-of-doing-business are making investors nervous.

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