Alphabet adds to cash pile despite higher costs, antitrust fine

SAN FRANCISCO: Alphabet Inc reported a 21 per cent jump in quarterly revenue, maintaining a growth rate that is rarely seen among companies its size and suggesting the big sales gains enjoyed recently by the other Internet firms are not done yet.

Alphabet, the owner of Google and YouTube, said it made US$3.5 billion in net income on sales of US$26 billion.

The profit would have been much larger but for a record US$2.7 billion European Union antitrust fine.

Still, the company noted that costs were rising faster than sales and warned that expenses would remain high as more searches shift to mobile devices.

The squeeze on expected future profit appeared to weigh on Alphabet’s share price, which fell about 3 per cent to US$967 after the bell.

Shares had closed up in regular trading and have gained 26 per cent for the year.

Alphabet’s cost of revenue, a measure of how much money the company must spend to keep its platforms running before added costs such as research, rose 28 per cent, well above the growth in revenue itself.

The rising costs, including what Google pays to drive traffic to its search engine, hurt operating margins more than most people had expected, said Doug Kass, president of Seabreeze Partners Management.

“This could be problematic going forward,” Kass said.

Alphabet chief financial officer Ruth Porat, asked about margins during a conference call with analysts, said the company was focused on getting bigger.

“As we’ve often said, we’re focused on revenue and operating income dollar growth and not on operating margins,” she said.

Increasing costs, Porat added, are a result of more money going into high-growth products that she said would create value for shareholders.

With its latest profits, Alphabet reported US$15.7 billion in cash and cash equivalents, and another US$79 billion in marketable securities.

Alphabet and social media rival Facebook Inc, which together dominate the online ad market, compete for advertising dollars.

This year, Google is expected to have US$73.75 billion in net digital ad revenue worldwide while Facebook is expected to take in US$36.29 billion, according to research firm eMarketer. — Reuters