Google Is Investing Advertising Proceeds at a Record Pace -- Hooray!

In spite of its massive size and omnipresent reach, Alphabet's (GOOGL -1.97%) (GOOG -1.96%) Google is still growing by leaps and bounds. Total revenue for Alphabet was up 22% in the fourth quarter of 2018, putting the wrap on yet another year of double-digit expansion in the top and bottom lines.

Unlike other bellwether stocks, Alphabet has not used its massive size and enviable profits to hasten the creation of a dividend, nor has it prompted a reduction in share count via a repurchase program to boost earnings -- at least not one like Apple (AAPL 0.52%) has opted to do.

Instead, Google is funneling cash back into the business to promote growth, especially outside of its advertising core competency. Given the company's one-dimensional nature and last year's controversy swirling around internet companies that deal in data, investors should be cheering the search giant on.

Check out the latest Alphabet earnings call transcript.

Some numbers for context

Google's operating expenses in the last year soared 30% to over $110 billion. Though much of those extra costs were related to advertising acquisition expenses (and included another fine from the European Union), Google shelled out almost an extra $5 billion on research and development, and almost an extra $4 billion on sales and marketing.

Additionally, capital expenditures (the purchase of property and equipment) for the year totaled $25.1 billion, a 91% increase over the $13.2 billion spent in 2017. On the fourth-quarter earnings call, management said it expects to continue its spend-happy ways on data centers and the like to increase its computing power.

The numbers are big, but to say that Alphabet can afford it is an understatement. While spending spiked, so did ad business -- resulting in total expenses as a percentage of revenue rising to 81% compared with 76% in 2017.

Data source: Alphabet.

Spend, Google, spend!

In spite of its size, it's imperative that Google's parent organization funnels cash back into itself. The company made a great deal of headway in growing new lines of business in 2018 through its cloud computing and device sales, but over 80% of revenue is still derived from advertising.

Image source: Getty Images.

The search giant is making progress, though, and piling cash into its growth initiatives could hasten that advance. Other Google revenues (viable business outside of ads) grew 31% to $6.5 billion in the fourth quarter alone, accounting for 17% of total sales. Google's Other Bets segment -- a smorgasbord of start-ups aimed at disrupting big, established industries -- is also making progress. Much of the "other net income" in the chart above came from equity gains in these start-ups. Though not making a profit yet, there are some recognizable names in there, like the self-driving car company Waymo, healthcare and data science experiment Verily, and remote internet access provider Loon.

Other Bets revenue grew to $595 million, racking up a $3.36 billion loss along the way. That's up from $477 million in revenue in 2017 and a loss on the start-ups of $2.7 billion. Again, big-time investments on Google's part, but these are small potatoes for the company. Eventually, a few of these start-ups could graduate to viable enterprises and earn back those dollars spent on them and then some.

Wall Street is showing some concern over the elevated investing activity; the stock is 12% off its all-time highs reached over the summer of 2018, even though search continues to grow at breakneck speed. I, for one, am cheering the investing spree. Investing is a fruitful endeavor over the long haul. Google can afford it, and it will yield results in due time.