Ad sales surge at Google parent Alphabet, but so do costs

SAN FRANCISCO: Strong growth in ad sales on Google search and YouTube were not enough to offset a surge in costs at parent Alphabet Inc that shrank the first- quarter operating margin, leaving shares f lat after hours on Monday.

Alphabet got a boost from how it values investments in Uber Technologies Inc and other startups.

That accounting change and a one-time benefit cut its effective tax rate nearly in half.

Investors are uncertain about future profit at Alphabet as the company navigates the move to a phone- based computing world and invests in small, fastgrowing initiatives from selfdriving cars to selling hardware and cloud computing services. The quarterly results did not clarify the outlook.

Alphabet’s operating margin of 22 per cent, down from 27 per cent a year ago, missed expectations because of the growth in expenses.

Alphabet is investing to keep pace with Amazon. com Inc and having to share more of its revenue with phone and browser makers, said James Cordwell, analyst at Atlantic Equities.

“The jump in profits is purely due to one-time items,” he said.

L on g e r - t e rm cap i t a l expenditures nearly tripled to US$7.3 billion in the first quarter from US$ 2.5 billion a year ago.

Still, worldwide sales increased to US$ 31.1 billion, above the average analysts’ estimate of US$ 30.3 billion, according to Thomson Reuters.

Thoseadsalesshowedinvestors that there were no immediate signs that rising global privacy concerns had affected profits, even as concerns over Facebook Inc’s use of privacy cast some suspicion on Google.

Officials across the world seek to force changes in Google’s business practices, such as giving customers more control over their data.

“The strong economy has companies spending more on advertising,” said analyst Ivan Feinseth from Tigress Financial Partners.

“Google continues to dominate both mobile and desktop search” and there will be “very little effect” from Facebook privacy data fallout, he said.

Google Chief Executive Sundar Pichai told analysts Monday that, “It’s important to understand that most of our ad business is search, where we rely on very limited information, essentially what is in the keywords to show a relevant ad.” — Reuters