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Alphabet's Earnings Miss: Untangling the Quarterly Results

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Tech behemoth Alphabet (GOOGL) - Get Alphabet Inc. Class A Reportbeat revenue estimates in the third quarter, but missed on earnings per share. The stock was falling 1.86% to $1,265 a share in postmarket trading.

Here's how its results played out:

GAAP earnings per share came in at $10.12, missing Wall Street estimates of $12.32. Revenue was $40.5 billion, however, beating analysts estimates of $40.307 billion and growing 20% year-over-year. Google's operating margin was 23%, lower than last year's third quarter margin of 26% and lower than analyst's expectation of 23.4%.

Alphabet's advertising revenue grew 17% to $33.9 billion. Cost-per-click grew 3% year-over-year, against last year's third quarter growth rate of negative 2%.

But that's not the end of the story. 

"Investors were expecting a real sound beat where Google beat on every segment," said TheStreet's Tech Editor Nelson Wang. "This time they didn't quite get that. They beat on revenues but not on earnings. Potentially, that was in their traffic acquisition costs." Google's TAC costs rose 6% year-over-year. 

"They had an other expense related to equity investments -- it could be Slack, it could be Uber -- that was about $1.5 billion in the quarter," pointed out Zev Fima, portfolio analyst for Jim Cramer's Action Alerts Plus. "That resulted in about $1.47 for the earnings hit." Plus, Fima noted, "Other bets," Google's segment reporting results from its moonshot bets with large potential, posted a wider loss than expected. 

"The thing to remember for Alphabet... this is a long-term play," Fima said. "A little noise quarter-to-quarter is not an issue." 

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