Google

Google-parent Alphabet posted lower-than-expected earnings for the fourth quarter but its push to develop non-advertising revenue sources may be gaining some traction.

The company earned $9.36 per share, adjusted and excluding items, on revenues of $26.06 billion. Analysts had expected earnings of about $9.64 per share on $25.26 billion in revenue, according to a consensus estimate from Thomson Reuters.

Alphabet blamed the earnings miss on a one-time tax adjustment.

Eighty-seven percent of Google’s revenue is still from ad sales, rising 17.4% to $22.4 billion in the last quarter. But non-advertising revenue increased 62% to $3.4 billion, primarily driven by a mixture of hardware sales, media, and app sales through the Google Play store.

The hardware products include Pixel smartphones, Google Home voice-controlled speakers, and virtual-reality headsets for smartphones.

“We see tremendous potential in these businesses,” CFO Ruth Porat said in an earnings call, adding that Google is also investing in machine learning and “next-generation” computing systems.

As The Wall Street Journal reports, Google is investing heavily to boost its non-advertising businesses. Capital expenditures soared by nearly a billion dollars to $3.08 billion in the fourth quarter.

“Much of that spending is for building new data centers, in part to help the company compete against Amazon.com Inc. and Microsoft Corp. in its cloud business of selling computing power and data storage over the internet,” the WSJ said.

Porat also said Google had “only begun to scratch the surface” with newer forms of advertising such as mobile search, YouTube and automated ad buying. “There are “sizable opportunities that have not yet been tapped,” she said.

At Other Bets, the collection of startups that make up Alphabet outside of Google, revenue rose 75% to $262 million in the fourth quarter, while the operating loss narrowed 10% to $1.09 billion from a year prior.

“Although Alphabet has grand designs on changing the world with self-driving cars, cures for disease, internet balloons, and all sorts of other fantastical projects, for now those ambitions are mostly money pits,” Quartz cautioned.

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