Google: Revenue growth in 4Q17 cannot stop profit decline, and the contribution of new business revenue is still negligible

Google's parent company Alphabet released its fourth quarter 2017 financial report showing revenue of $32.3 billion, up 24% year-on-year, the highest growth rate in recent years. However, cost growth was faster than revenue growth, which inevitably caused market concern.

Revenue growth hit a record high in recent years

According to the financial report, Google's revenue in the fourth quarter of 2017 increased by 24% year-on-year to US$32.3 billion, once again setting a record high year-on-year growth rate.

The business is still single, and the proportion of innovative business is extremely low

Currently, most of Alphabet's revenue still comes from Google's revenue (including traditional search business, Google Cloud, YouTube, App Store, etc.), while the revenue from innovative businesses including self-driving cars, Nest, etc. just exceeded 410 million in a single quarter, accounting for only 1.3% of the revenue.

In the fourth quarter, Alphabet's advertising business still accounted for 84% of its revenue, while revenue from businesses including app store revenue sharing and Google Cloud accounted for 15%, and innovative businesses accounted for only 1%.

Costs and expenses rose too fast, and operating profit margins declined

Although Alphabet's revenue growth has accelerated, its costs and expenses have grown even faster, dragging down its overall operating profit margin. In the fourth quarter, Google's operating profit margin was 24%, down 4 percentage points from the previous quarter and down 1 percentage point from last year.

The cost-to-revenue ratio increased from 41% in the same period last year to 44%, mainly due to the rapid growth in the cost of acquiring mobile traffic. Since the cost of mobile traffic is higher than that of PC, the increase in the proportion of mobile traffic will continue to push up costs. At the same time, in order to sell its hardware products such as voice, Google's market expenses also grew rapidly.

Table: Google's cost ratio

​

Google lost $3 billion (about 18.9 billion yuan) due to spending $11 billion (about 69.32 billion yuan) on taxes.

Other data:

• Fast-growing Google Cloud has become a "$1 billion business in a single quarter", with G Suite's paid user base exceeding 4 million
• Google's self-driving car business Waymo has driven more than 4 million miles on the road, with the last million miles taking less than six months, compared to 18 months for the first million.
• More than 1.5 billion people watch videos on YouTube every month, and more than 1 billion learning-related videos are played on YouTube every day.
• Google Assistant supports more than 400 million devices, including Google HOME, Android phones and tablets, iPhones, headphones, TVs, watches, Android Auto, etc. Android Auto supports more than 400 car models.
• Google's business benefits partners around the world, including news media, app developers, and YouTube publishers. In the past four years, Google has brought these partners more than $100 billion in revenue.

Looking ahead, Google will put AI first to empower the next generation of products like the Google Assistant, and will continue to invest in the cloud, YouTube, and hardware.