Google parent Alphabet Inc. swung to a loss after taking a $9.9 billion charge related to the new U.S. tax law, though its core advertising business continued its strong run even as criticism grows over how the company monitors its clout and content.
Alphabet said the one-time tax hit caused a $3.02 billion loss in the fourth quarter. Revenue rose 24% to $32.32 billion from a year earlier.
The company keeps most of its $101 billion cash pile overseas, but it didn’t say Thursday when or if it would bring that cash to the U.S. On a call with analysts, Chief Financial Officer Ruth Porat said the company’s spending plans are “unchanged from our prior discussions.”
Separately, Alphabet said its board had appointed director John Hennessy, the former president of Stanford University, as its chairman. Longtime Executive Chairman Eric Schmidt stepped down from the post in December but remains on the board. The company also said in a securities filing Thursday that another director, former Princeton University President Shirley Tilghman, is leaving the board.
Excluding the impact of the tax charge, Alphabet reported a 28% increase in profit to $6.84 billion compared with the year before. Without the tax charge, its profit of $9.70 a share missed estimates of $9.98 a share, according to analysts polled by FactSet. Shares were down 2% after hours.
RBC Capital Markets analyst Mark Mahaney attributed the earnings miss to higher expenses related to so-called traffic-acquisition costs, or fees Alphabet pays to such partners as Apple Inc. to put its services front and center on their devices. Those fees rose 33% to $6.45 billion from a year ago. That amounts to 24% of Google’s overall ad revenue, up from 23% in the prior quarter.
“The negative is expenses came in heavier than expected,” he said. “That raises a question: How much revenue is this company having to give away to maintain these growth rates?”
Ms. Porat blamed the rise in traffic-acquisition costs on the company’s highest-growth areas—mobile search and so-called programmatic ads where Google places ads on partners’ content—which carry higher fees. Ms. Porat said some of these costs would ease after the first quarter.
Alphabet also increased sales and marketing spending by 38% to $4.31 billion, reflecting marketing around Google’s new line of hardware devices during the holidays.
Still, the three months marked the 32nd consecutive quarter of revenue growth of 20% or more, he said.
Alphabet has been able to sustain such growth because its core Google unit handles nearly 92% of internet searches, according to tech data firm StatCounter. Google also owns the world’s dominant video site, YouTube, which the company said has helped drive growth in recent years.
Google makes most of its money when users click on the ads it serves across the web, including atop its search results, before YouTube videos and on millions of third-party websites. And as people continue to use the internet even more, those clicks keep piling up. Google said clicks on its ads rose 43% in the fourth quarter from the prior year, after having 47% growth in the third quarter.
Yet the amount of money Google rakes in for each ad click has fallen steadily in recent years. It earns less from mobile-search and YouTube ads, which are rapidly growing, than from traditional desktop search ads. Google said its revenue per click fell 14% in the quarter from a year ago, after an 18% decline in the third quarter.
The results, including another record for revenue and what would have been record profit were it not for the tax charge, come as Alphabet faces criticism on several fronts. Google’s supremacy in search drew it a $2.71 billion fine from European regulators who said the company favored its comparison-shopping service over rivals. YouTube, meanwhile, is grappling with a backlash from marketers over the placement of their ads in front of undesirable videos, including YouTube’s curated lineup of “preferred” content.
Google’s dominant ad business accounts for the vast majority of Alphabet’s profits, but the company is trying to change that. Alphabet is investing in a dozen units outside of Google, including its self-driving firm Waymo and life-sciences startup Verily, hoping at least a few of them will become big businesses down the road.
These “Other Bets,” though, are far from commercial successes yet. Alphabet said they posted a $916 million operating loss in the fourth quarter on $409 million in revenue, compared with a $1.09 billion loss on $262 million in revenue a year ago.
The more near-term bet to diversify its business comes from inside Google. The unit is investing heavily in cloud and hardware efforts, though it still trails rivals in both areas. Those businesses, along with sales from its Google Play app and media store, are combined in Google’s “other revenue” segment, which grew by nearly 38% to $4.69 billion from a year ago.
Alphabet also said Thursday its board authorized $8.59 billion in share repurchases, its first since a $7 billion buyback that began in late 2016.
Write to Jack Nicas at jack.nicas@wsj.com
