Google Search Leads the Way, as Alphabet Beats Earnings Expectations

Ad revenue soars while moonshot projects lose billions

Google still makes up most of the Alphabet.

In its first report that separates the advertising business from special projects like self-driving cars and package-delivering drones, the Google parent company's fourth-quarter earnings revealed that the search engine part of the business still accounts for the majority of Alphabet's value.

Revenue for the fourth quarter of 2015 totaled $21.3 billion, an 18 percent year-over-year increase. Advertising revenue in the fourth quarter increased to $19.1 billion, up from $16.3 billion in the fourth quarter of 2014. (The stronger-than-expected earnings allowed Alphabet to briefly surpass rival Apple to become the most valuable company in the world, as Alphabet shares rose 8 percent in after-hours trading.)

"Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we've been investing for many years," Alphabet CFO Ruth Porat said in a statement. "We're excited about the opportunities we have across Google and Other Bets to use technology to improve the lives of billions of people."

However, "other bets"—projects like self-driving cars, Google Fiber and Nest—cost the company $3.6 billion in 2015. (A year earlier, Google lost $1.9 billion on similar projects.)

Aggregate paid clicks rose 31 percent year over year, while paid clicks on Google websites increased by 40 percent. Paid clicks on Google Network Members' websites increased 2 percent, and aggregate cost-per-click fell 13 percent.

On the company's earnings call, Porat said search revenue on mobile was "up significantly" and that mobile search continues to out-perform desktop.

While the company lifted the curtain to show how much it's really losing from moonshot projects, there are still questions surrounding how mobile and desktop search play into Alphabet's overall business—and what total clicks and cost-per-click mean for advertisers.

"I would have to say that the resulting story certainly tells the story that Google wants to tell more than providing the insights that people want to see," said Adam Berke, president and CMO of AdRoll, an online advertising retargeting company.

Here are some other interesting numbers from the company's fourth-quarter results:

  • Gmail has now entered the roster of products with more than 1 billion global users.
  • The number of employees at Alphabet rose from 53,600 to 61,814.
  • Thirty percent of all online shopping purchases now happen on mobile phones.
  • More than 40 car brands plan to bring Android Auto into their vehicles.