Alphabeta��s earnings look better than ever thanks to a new accounting rule

6

An obscure accounting change added billions to Alphabeta��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 Googlea��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 companya��s earnings during the period. Google previously warned that the change would make the a�?other income and expensea�? 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 Googlea��s dominant and growing advertising business, which made up about 85% of its revenue in the quarter.

Googlea��s a�?othera�? businesses, which include cloud storage, hardware, app sales, and other segments, also had a strong period. The Alphabet subsidiarya��s a�?other revenuea�? rose 35% from the same quarter a year earlier, to $4.35 billion. That category includes Alphabeta��s Nest smart-home business, which merged with Googlea��s broader hardware business during the period.

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

Alphabeta��s shares rose more treatment coumadin than 4% in after-hours trading immediately following the earnings announcement, but retreated.