Shares fell as much as 3 percent in after hours trading as the company reported worse-than-expected performance on two key metrics: cost per click and traffic acquisition costs, or TAC.
Here are the numbers:
- EPS: $5.01 versus $4.49 expected
- Revenue: $26.01 billion, up from $21.5 billion a year ago
- Paid clicks: +52% from a year ago
- Cost per click: (23%) from a year ago
The drop in cost per click -- the amount advertisers are paying each time a user clicks on an ad served by Google -- was much higher than the 15 percent analysts expected, according to StreetAccount, due to more search traffic coming from mobile devices.
Traffic acquisition costs amounted to $5.09 billion, higher than analyst estimates of $4.75 billion.
Alphabet CFO Ruth Porat said on a conference call with analysts that the shift to mobile search traffic and automated purchases made by ad clients -- better known as programmatic advertising -- both carry higher costs.
"We do expect TAC costs to increase," Porat said.
Still, the company said operating income excluding the EU fine rose 15 percent from a year earlier.
Revenue jumped almost 21 percent from a year ago, more than the 19 percent rise Wall Street analysts expected.
Alphabet is focused on "dollar growth" in revenue and operating income, "not margins," Porat said.
Operating income was boosted by slower growth in the company's capital expenditures, which reflected a pause in the expansion of its Google Fiber business, Porat said on a call with reporters after the results were announced.