By Tom Huddleston Jr.
February 1, 2018

Shares of Google-parent Alphabet dropped by nearly 3% in after-hours trading on Thursday, after the company reported fourth-quarter earnings that fell short of Wall Street’s expectations.

While revenue for Google’s massive online ad business continued to grow in the most recent quarter, Alphabet’s spending on traffic acquisition, as well as ambitious projects such as self-driving cars, also continued to mount. Meanwhile, a one-time, $9.9 billion tax charge related to the recently-passed U.S. tax legislation steered the company to post a net loss of more than $3 billion.

Even without the one-time tax charge, Alphabet’s adjusted earnings came in at $9.70 per share in the fourth quarter, which still fell short of the $9.98 per share that Wall Street expected. The disappointing earnings came as Google’s traffic acquisition costs, the amount it pays to partner websites, continued to rise in the most recent quarter, jumping to $6.45 billion (or 24% of Google’s ad revenues) from $4.8 billion in the same period a year earlier. The company has said that its traffic acquisition costs will likely continue to rise as it shifts more of its ad business to mobile search. Google’s aggregate paid clicks also increased by 43% year-over-year in the fourth quarter.

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Meanwhile, parent Alphabet’s “Other Bets” unit—home to self-driving unit Waymo and smart home devices like Nest—continued to lose money, posting operating losses of $916 million in the quarter.

On the bright side, Alphabet’s overall revenues beat Wall Street’s forecasts, jumping 24% to $32.3 billion. As usual, most of that total (84%) is attributed to Google’s huge ad business, which accounted for $27.2 billion in quarterly revenue, up more than 21% from the same quarter a year earlier. One of Google’s other growing sources of revenue is its expanding enterprise business, which includes a cloud services provider that the company said now generates more than $1 billion in revenue per quarter. Google is looking to position its cloud platform as a competitor to larger rivals in the area like Amazon Web Services and Microsoft’s Azure, though the company has been reluctant to reveal any sales figures for that business in the past until now.

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