Google parent Alphabet sees profit slump 23%

San Francisco: Google parent Alphabet on Monday reported a sharp drop in profits over the past quarter as it ramped up spending for the launch of a wide array of new gadgets and services.

Profit dipped 23 per cent from a year ago to $7.1 billion (Dh26 billion) as revenue grew 20 per cent to $40.5 billion for the California tech giant and internet search leader.

Shares in Alphabet fell 1.1 per cent in after-hours trade on the weaker-than-expected profits.

Digital advertising at Google continued to be the primary money-maker at Alphabet — accounting for some $34 billion in revenue.

But revenue from other sources including cloud computing climbed more than 40 per cent to $6.4 billion, according to an earnings report.

Alphabet has been pumping money into research and development for artificial intelligence, cloud infrastructure, and launching new Pixels smartphones and other hardware.

Research and development costs rose 25 per cent from last year to $6.6 billion and sales and marketing expenses were up 20 per cent at $4.6 billion.

Earlier this month, the company unveiled its latest Pixel handsets, which include features such as motion-sensing for gesture control and facial recognition.

“We continue to invest thoughtfully in talent and infrastructure to support our growth, particularly in newer areas like Cloud and machine learning,” Alphabet chief financial officer Ruth Porat said in a statement.

Diversifying the business

The company, which faces antitrust reviews over its dominance of internet search on both sides of the Atlantic, has been seeking to diversify its business with more hardware and new services.

Losses on “other bets” such as delivering internet services from high-altitude balloons ballooned to $941 million in the quarter, compared to a $727 million loss in the same period a year earlier.

Last month, the Wing unit spun out of a “moonshot” lab at Alphabet said a new drone service was beginning, and would be transporting medical supplies and other goods in a rollout of commercial operations.

The Alphabet results were impacted by a one-time charge of $549 million, believed to be linked to a tax settlement with French authorities.

Alphabet said it set aside nearly $1.6 billion as a provision for income taxes, up from $891 million last year and that its effective tax rate would be 18 per cent, double that from a year earlier.

Last week, Google claimed to have developed a new generation of quantum machine that vastly outperforms the world’s fastest supercomputer.

The company also said it had made a leap forward in search with an assist from its machine learning efforts.

Google chief Sundar Pichai said in a statement: “I am extremely pleased with the progress we made across the board in the third quarter, from our recent advancements in search and quantum computing to our strong revenue growth driven by mobile search, YouTube and Cloud.”