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Advertising & Hardware Boost Google Alphabet As Cloud Benefits Microsoft Revenues

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Strong results from two tech titans after both Alphabet and Microsoft recorded positive financials

There was some good news for the tech industry on Friday after two big players recorded impressive quarterly financial results.

Google’s parent Alphabet recorded a stunning growth in revenue, helped by its strong performance in the advertising sector, after a busy final three months of 2016.

Microsoft’s results meanwhile was helped by another strong showing for its cloud services, with Azure growth especially pleasing, which helped offset a decline in the Personal Computing segment following Redmond’s retreat from the smartphone sector.

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Alphabet Sales Rise

It is fair to say that Alphabet posted a stunning set of financials. For the fourth quarter ending 31 December, it posted a net profit of $5.3bn (£4.3bn), up from $4.9bn (£3.9bn) a year ago.

Revenues rose 22 percent to $26bn (£20.8bn) from $21,329bn (£17bn) a year earlier. Of this, Google’s revenue rose 17.4 percent to $22.4bn (£18bn) in the quarter.

There was likewise good news on the annual figures after Alphabet posted a net profit of $19.5bn (£15.5bn), up from $16.3bn (£13bn) in 2015.

Annual revenues rose to $90bn (£72bn) from $75bn (£57.8bn) in 2015.

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“Our growth in the fourth quarter was exceptional – with revenues up 22 percent year on year and 24 percent on a constant currency basis,” said Ruth Porat, CFO of Alphabet. “This performance was led by mobile search and YouTube. We’re seeing great momentum in Google’s newer investment areas and ongoing strong progress in Other Bets.”

As Porat mentioned, Alphabet’s revenues were helped by a strong growth in advertising revenues. Indeed, researcher eMarketer has predicted that Google will capture 58.8 percent of the search ad market worldwide.

Paid clicks, or clicks on Google ads, rose 36 percent, compared with a 33 percent increase in the third quarter. These paid clicks only make money if a user clicks on them. Meanwhile cost-per-click dropped 9 percent, as Google sold more mobile ads which commands lower prices. That was offset however by the fact that Google is also selling more ads on YouTube.

Meanwhile Google-branded hardware such as Google Home and the Pixel smartphone gained some over the holiday period.

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Microsoft Cloud Success

There was likewise good news over at Microsoft, after it posted its first results since it completed its acquisition of LinkedIn on 8 December. LinkedIn results are included in Redmond’s Productivity and Business Processes segment.

For the second quarter 2017 ending 31 December Microsoft posted a net profit of $5.2bn (£4.1bn), up slightly from a profit of $5bn (£4bn) a year earlier.

Revenues rose to $24bn (£19.2bn) from $23.8bn (£19bn) a year ago.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” said CEO Satya Nadella. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

There is little doubt that Microsoft is being helped by the strong demand for its cloud-based services. Revenues for its ‘Intelligent Cloud’ unit rose 8 percent to $6.9 billion (£5.5bn), helped by a 12 percent revenue rise in server products and cloud services.

And Azure revenue increased a staggering 93 percent with Azure compute usage more than doubling year-over-year.

This helped offset 4 percent decline in Enterprise Services revenues.

Revenue in Microsoft’s ‘Productivity and Business Processes’ division (which includes LinkedIn) rose 10 percent to $7.4 billion (£5.9bn), helped by increases in revenues of Office commercial products and cloud services. Office consumer products and cloud services revenue also increased 22 percent and Office 365 consumer subscribers increased to 24.9 million

LinkedIn contributed revenue of $228m (£182m) for the period beginning on 8 December, 2016, but the business social network reported a net loss of $100m (£80m).

The continuing negative issues comes from Microsoft’s PC division (Personal Computing), which saw a 5 percent fall in revenue to $11.8bn (£9.4bn), driven primarily by lower phone revenue after Redmond’s ignominious retreat from the smartphone arena.

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