Cost of revenues rose from a year ago to 41 percent of revenues, up from 38 percent a year ago. The company's traffic aquisition costs hit $4.8 billion during the quarter, up from a year ago and higher than the $4.7 billion expected by a StreetAccount estimate.
Alphabet also reporting a tax-charge related to stock-based compensation of $586 million, higher than the $316 million a year ago.
Google's costs-per-click — the amount it gets from advertisers— fell 16 percent year over year, more than the 11 percent expected by StreetAccount estimates.
"The core of Alphabet's business is still about both Google's search and YouTube's revenues," Forrester analyst Thomas Husson told CNBC in a statement. "The majority of these revenues derive from mobile, and the lower cost-per-click here should be compensated by a higher volume. I'd argue that the stability of Google's revenue in the next two to three years will depend on their ability to maintain the growth of mobile revenues. While there might be slower growth, the mid-term prospect looks good given the fact that advertisers will wake up to the mobile Web opportunity after having focused too much on mobile apps."
The results hinge on Google's new advertising formats, like promoted pins in Maps, and progress monetizing YouTube. Investors will listen closely to the quarterly conference call for any signs that YouTube, like rival Facebook, is closing in on the maximum number of ads its customers will tolerate.
Google did not share specifics on the holiday season sales of the new Pixel phone and Google Home, its competitor to Amazon's Echo. Neil Doshi, managing director at Mizuho Securities, estimated that Google sold about 1 million Pixels during the quarter.
CEO Sundar Pichai told investors that the company was thrilled with the reception of the Pixel, and that the Google Home was a very popular present for the holidays.
Earnings are also a chance for chief financial officer Ruth Porat to share progress on reigning in the company's "other bets" category, which includes Nest home automation products, venture investments and self-driving car technology (recently renamed Waymo).