Alphabet shares seesaw after earnings beat

Key Points
  • Google parent company Alphabet reports its first quarter earnings on Monday.
  • It beat analyst expectations on both the top and bottom line.
Alphabet shares rise after beating estimates

Google parent company Alphabet just reported its first quarter earnings, beating analyst expectations on both the top and bottom line. The stock initially popped 3 percent, but seesawed before, during, and after the earnings call.

Although the company saw strong sales growth, its traffic acquisition costs continued to increase as a percentage of revenue and the amount of money it spent on real estate and computing power spiked, too.

Here are the most important numbers:

Earnings per share: $9.93 vs $9.28 expected by a Thomson Reuters consensus estimate

Revenue: $31.15 billion vs $30.29 billion expected by a Thomson Reuters consensus estimate

Operating income for 2018 came in as $7 billion versus $6.6 billion in 2017

Because of a new accounting rule, Alphabet had to report the unrealized gains and losses from its investments. The company posted a one-time gain on equity securities of $3 billion, which is likely in large part due to its 2013 investment in Uber.

As usual, Google's advertising business accounted for most of its revenue, posting $26.642 billion in the first quarter, up nearly 20 percent year-over-year.

Meanwhile, its "other revenues," which include its cloud business and hardware sales was nearly $4.3 billion. That's up from $3.2 billion year-over-year and includes revenues from smart-home unit Nest for the first time.

Although Google didn't provide any revenue updates for its Cloud unit, which it revealed in its Q4 earnings is a billion-dollar-per-quarter business, CEO Sundar Pichai said during the earnings call that Google is signing "significantly larger, more strategic deals."

Another important measurement of Google's ads business changed this quarter as it started reporting Network properties growth in impressions versus clicks to reflect the way advertisers buy programmatic ads.

Its Network Members' properties, which includes third-party sites, saw its impressions increase 5 percent quarter-over-quarter and its cost-per-impression decrease 10 percent quarter-over-quarter (with a 0 percent increase and 18 percent increase year-over-year, respectively). Network revenues were $4.6 billion.

Google properties, like search and YouTube, saw paid clicks (how many times people clicked its ads) increase 8 percent quarter-over-quarter while cost-per-click, or how much it can charge for its ads, decreased 7 percent quarter-over-quarter (with a 59 percent increase and a 19 percent decrease year-over-year, respectively). Properties revenues were nearly $22 billion.

While Google's advertising business still pumps out the profits, Alphabet also breaks out the revenues and losses for its "Other Bets," like healthcare company Verily and internet service provider Fiber. Other Bets posted Q1 revenue of $150 million on operating losses of $571 million. Previously, this was where Alphabet posted Nest sales, which explains why revenue declined from $409 million in Q4.

Google's total traffic acquisition costs, which includes the money it pays to phone manufacturers, like Apple, that use its services, like search, hit $6.28 billion, or 24 percent of Google's advertising revenues. That's up from 22 percent during Q1 2017. On the company's earnings call, chief financial officer Ruth Porat said that that increase reflects the fact that mobile search and programmatic advertising have higher TAC.

Porat also told CNBC's Josh Lipton that TAC as a percentage of its websites revenue will "slow" beginning in the second quarter.

Alphabet's operating expenses were $10.7 billion, which was up 27 percent year-over-year. Porat attributed that increase primarily to research and development. Meanwhile, its accrued capital expenditures were $7.7 billion, which is triple the expenditures for the same period in 2017. Porat attributed this huge spike to its $2.4 billion purchase of New York City's Chelsea Market building, as well as investments in data center construction.

"Our facilities spend in Google, dominated by the Chelsea Market acquisition, reflects that we favor owning rather than leasing real estate when we see good opportunities," she said.

Pichai and Porat also fielded questions about Europe's upcoming GDPR privacy rules (the company told investors not to worry, and that it has spent 18 months preparing for the May 25 change) as well as YouTube (which they said continued to drive its websites revenue).