Alphabet discloses privatefirm investments

Increased concern about privacy and the threat of new regulation may hurt this business, but it would also damage smaller rivals, perhaps more.

Alphabet gave investors several new metrics this quarter. It disclosed more details on its massive investments in private companies like Uber for the first time. The Mountain View, California-based company reported a US$3 billion gain on equity securities in the first quarter. That boosted earnings by US$3.40 a share. Excluding those gains, Alphabet would have made a profit of US$9.93 per share.

Alphabet capital spending surged nearly threefold to US$7.7 billion. That reflected a large real-estate investment and investments in Google’s cloud-computing and hardware businesses.

“The strong economy has companies spending more on advertising and we have an ongoing migration from traditional types of media advertising to greater online and social media-based advertising,” analyst Ivan Feinseth from Tigress Financial Partners told Reuters. “Google continues to dominate both mobile and desktop search.”

Worldwide sales increased to US$31.1 billion, above the average analysts’ estimate of US$30.3 billion, according to Thomson Reuters I/B/E/S. Still, operating income margins dropped to 22 per cent from 27 per cent a year ago.

Alphabet’s profit margins have fallen in recent quarters as it ramps up costly new projects in cloud computing and hardware at its core Google unit, and despite spending cuts on an unprofitable set of ancillary initiatives known as “other bets.”

Overall, quarterly profit of US$9.4 billion, or US$13.33 per share, exceeded estimates of US$6.56 billion, or US$9.28 per share, according to Thomson Reuters I/B/E/S. About US$3.40 of the earnings per share were attributable to a new accounting method for unrealized gains in Alphabet’s investments in startups such as Uber Technologies Inc.

Excluding the investmentrelated gains and other items, adjusted earnings were US$9.93 per share, topping the US$9.28 per share consensus. Alphabet’s effective tax rate dropped to 11 per cent from 20 per cent a year earlier.

Revenue from ads sold by Google rose as advertisers pursued slots on its search engine, YouTube video service and millions of partner apps and websites.

Investor appetite for Alphabet has been weakened by a combination of cost and regulatory concerns as officials across the world seek to force changes in Google’s business practices, such as giving customers more control over privacy of their data. Shares had fallen nearly 3.5 per cent this year until a swift pre-earnings rebound last week.

U.S. lawmakers initially sought to question Google alongside rival Facebook Inc at a hearing this month on how British data analysis firm Cambridge Analytica was able to acquire data on unwitting Facebook users.

Google was later excused.