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Parsing Alphabet’s 4Q17 Results

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Part 2
Parsing Alphabet’s 4Q17 Results PART 2 OF 7

Why Alphabet Stock Fell after 4Q17 Results

Stock fell 5%

Alphabet (GOOGL) stock fell 5.3% on the first full trading day after its 4Q17 earnings release. The stock started falling soon after the earnings results started coming in. Alphabet reported its 4Q17 results on February 1, 2018, after the close of regular trading in US stocks. But shares of the Google parent company fell more than 5% in extended trading soon after the results came in. The stock recouped some losses and closed down 2%.

The pressure on Alphabet stock in post-earnings trading was due to investors expressing concerns over the company’s rising costs and shrinking advertising rates.

Why Alphabet Stock Fell after 4Q17 Results

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Expenses rose 27.3%

Alphabet’s total costs and expenses increased 27.3% YoY (year-over-year) in 4Q17. Rising expenses in the quarter were driven by higher traffic acquisition costs, which is the amount the company pays to partners that bring users to its Internet search engine.

Rising expenses led to adjusted EPS (earnings per share) that was below the consensus estimate. The company’s 4Q17 adjusted EPS of $9.70 fell short of $9.98 that Wall Street was expecting for the quarter.

Advertising rate fell 14%

Google’s advertising rate, or CPC (cost per click), which is the amount marketers pay to advertise on Google properties, fell 14% YoY in 4Q17. Since advertising contributes most of Alphabet’s revenues, falling ad rates are a serious concern for investors.

Facebook (FB), Twitter (TWTR), and Snap (SNAP) stocks fell 1.4%–4.5% on the day following Alphabet’s 4Q17 earnings report. Amazon (AMZN) rose 3% that day.

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