Ad growth lifts Google parent profit
Alphabet profit in the first three months of 2018 soared more than 70% from a year ago
Google parent Alphabet reported a surge in quarterly profits on Monday, lifted by strong growth in the digital advertising segment it dominates along with Facebook.
Profit in the first three months of 2018 soared more than 70 per cent from a year ago to $9.4 billion, Alphabet said in an earnings report that was well above forecasts.
Revenue at the Californiabased internet giant during the first three months of this year was $31.1 billion, up 26 per cent from the same period last year.
Alphabet shares slipped slightly in after-market trades that followed release of the earnings report, evidently on investor concerns about growing costs.
“The all-important advertising revenues came in ahead of Street expectations although the bulls were hoping for a bigger beat,” GBH Insights head of technology research Daniel Ives said in an analyst note.
“While fundamental worries coupled by regulatory black clouds continue to be overhangs on the name, we believe 1Q advertising and ‘bread and butter’ search revenues were healthy and a good barometer of potential strength heading into the rest of 2018.”
The first-quarter profit included one-time gains of $3 billion on its equity investments, believed to have come mainly from a rise in the value of its stake in leading smartphone-summoned ride service Uber.
Raising ‘other bets’
Revenues from its “other bets,” which include the selfdriving car unit Waymo and life sciences firm Verily, amounted to $150 million from $132 million. “We have a clear set of exciting opportunities ahead, and our strong growth enables us to invest in them with confidence,” said Alphabet chief financial officer Ruth Porat.
Alphabet plans to keep up investment in new areas its core search service, as well as keep pumping money into undersea data cables, artificial intelligence, data centers and its line of consumer electronics devices including Pixel smartphones.
Google chief executive Sundar Pichai said that he will share what the company is “up to next” at its annual developers conference in Silicon Valley next month.
Alphabet, Google’s parent company, is spending like it is beginning to prepare for life after advertising. Currently, Alphabet makes nearly 90 per cent of its money from selling advertising on the internet, and gobbles up heaps of data about its users to help marketers target those ads more effectively.
But a close reading of Alphabet’s financial results for the first quarter of 2018 showed that the Silicon Valley giant is accelerating its efforts to diversify into other businesses.
Alphabet has made investments in areas like self-driving cars and online computer services for businesses for years, but spending in those areas was up dramatically in the first quarter. The company’s capital expenditures, which included installing undersea cables and the construction of new data centres, were $7.7 billion — more than triple the same period last year.
Ruth Porat, Alphabet’s chief financial officer, said that increase reflected a “commitment to growth” because the company had spent heavily on computing infrastructure, for both its own internal use and customer needs like Google Cloud — the unit that provides technology services to other companies.
Alphabet’s expenses rose 27 per cent in the quarter. Porat said the heaviest spending came from research and development costs — mainly the hiring of additional technical staff. The company said its total employees had increased to 85,050 from 73,992 in the same period a year ago.
Porat also pointed out an increase in spending for advertising to promote newer products like Google’s own hardware and the company’s artificially intelligent digital assistant. “They are thinking about their future,” said Collin Colburn, an analyst at Forrester Research who focuses on search advertising. “They want to diversify beyond just advertising being such a big part of their business.”
That focus on variety comes as the data-collection practices that underpin the entire digital advertising industry are under intense scrutiny after the personal information of up to 87 million Facebook users ended up in the hands of the political research firm Cambridge Analytica. Google’s advertising business is more than twice the size of Facebook’s, and the company’s portfolio of data about its users is as expansive — if not more so — than that of the social network.
No slowing down
Still, the search giant’s core business showed no sign of slowing in the first quarter. Revenue from Google’s advertising business, which includes ads shown on Google search and commercials running before YouTube videos, increased 24 per cent during the quarter.
However, Google’s advertising profits were weighed down by an increase in traffic acquisition costs — the fees that it pays companies like Apple to make sure that its search engine is the default option when people open a browser on the iPhone.