Google owner Alphabet has announced profits of $5.3bn for the fourth quarter of 2016 driven by the ongoing success of its advertising business, as well as growth in its hardware business from its new Pixel smartphones.
However, despite the sizeable profit it was only an increase of $400m on the same period in 2015 despite a huge surge in revenues which rose from $21bn in the year-ago quarter to $26bn this year. This caused the firm's share price to fall, as analysts had expected better growth.
Almost all this revenue came from Google's core advertising businesses that accounted for $22bn of the $26bn total.
Google chief financial officer, Ruth Porat, said the figures underlines strong ad growth in several core areas: "This performance was led by mobile search and YouTube."
One core reason Alphabet's profits were not as strong as they could have been was due to its Other Bets division. It brought in just $262m in revenue, up from $150m in the same period last year.
However, the bigger issue is that its operations cost the company $1bn. This is a small improvement on the $1.2bn it lost in the same period the year before, though, but it may take investor some convincing the division is worth ongoing losses when revenues remain so low.
One better-performing growth area though was its ‘Other revenues' stream, which includes its Cloud Platform and its hardware offerings, specifically the Pixel and Pixel XL smartphones that were unveiled in the quarter.
This is likely to account for the huge 62 per cent increase in the division, from $2.1bn in Q4 2015, to $3.4bn this year.
Furthermore, it is likely some of the potential profits Google could have banked were spent on the marketing around the device, which has been heavily promoted as Google's first major foray into the smartphone market with its own brand device.
Google will perhaps hope that it can reduce these costs over time while still growing revenues in this area as it looks to take on Apple in the smartphone market.
Despite the ongoing losses in Other Bets Porat said the company was happy with its performance in its other business areas outside Google's advertising strength.
"We're seeing great momentum in Google's newer investment areas and ongoing strong progress in Other Bets."
Google's Q4 statement also revealed its headcount grow by almost 20 per cent between Q4 2015 and 2016, from 61,814 to 72,053.
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