Alphabet’s earnings look better than ever thanks to a new accounting rule

Thanks SEC.
Thanks SEC.
Image: AP Photo/Paul Sakuma
We may earn a commission from links on this page.

An obscure accounting change added billions to Alphabet’s bottom line during the first quarter of 2018.

On Monday, the web giant posted (pdf) earnings of $13.33 per share during the period, 43% more than analysts surveyed by FactSet expected, thanks in part to a new US Securities and Exchange rule that changed the way Google reports its investments (pdf) in other companies. The reporting change required Google’s parent company to disclose all gains and losses to its bottom line from its equity investments, including its stake in Uber. The accounting change added about $3.40 per share to the company’s earnings during the period. Google previously warned that the change would make the “other income and expense” line item on its income statement volatile and impact its bottom line.

Even without that, Alphabet would have beat analysts expectations for earnings and revenue. Revenues rose 26% year over year, to $31.1 billion, during the first quarter. The surge was fueled by Google’s dominant and growing advertising business, which made up about 85% of its revenue in the quarter.

Google’s “other” businesses, which include cloud storage, hardware, app sales, and other segments, also had a strong period. The Alphabet subsidiary’s “other revenue” rose 35% from the same quarter a year earlier, to $4.35 billion. That category includes Alphabet’s Nest smart-home business, which merged with Google’s broader hardware business during the period.

Nest was previously recorded in Alphabet’s “other bets” revenue segment. The comparable 2017 period was recast to reflect the change. Without Nest, Alphabet’s other bets brought in $150 million in revenue in the first quarter of 2017, up 14% from a year ago.

Alphabet’s shares rose more than 4% in after-hours trading immediately following the earnings announcement, but retreated.