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Google’s Alphabet Profits From Advertising Sales Surge As Cloud & Hardware Grow

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

Advertising, cloud, and Pixel smartphones all help deliver more stunning growth for search engine giant

Google’s parent Alphabet has recorded more stunning growth in both profits and revenues, helped once again by its strong performance in the advertising market.

Indeed, it is fair to say that advertising remains the principle cash cow for Alphabet, attributing roughly 87 percent of Alphabet’s total revenues.

But Alphabet is also benefiting from other ventures including its growing cloud business and revenue from its hardware (i.e Pixel smartphone) and Google Play Store.

Google Pixel reviewStunning Growth

There were virtually no negatives to be gleaned from Alphabet’s latest financials. Net income rose 28 percent to $5.4 billion (£4.2bn), or $7.73 (£5.97) per share, from $4.2 billion (£3.3bn) a year ago.

Analysts on an average had expected a first-quarter profit of $7.34 (£5.67) per share, and consequently shares in the firm rose 2.8 percent to $916.80 (£708.78) in after hours trading.

There was equally stunning growth on the sales side as revenues rose 22 percent to $24.750 billion (£19.1bn) from $20.257 billion (£15.7bn) in the same year-ago quarter.

It is clear that advertising is the main money maker, after it posted advertising revenues of $21.41 billion (£16.5bn), or around 87 percent of Alphabet’s total revenues. In the same year-ago quarter, Alphabet’s revenue was $18 billion (£13.9bn), a 16 percent increase for Google in the past year.

Paid clicks, where an advertiser pays only if a user clicks on ads, rose 44 percent – analysts were, according to Reuters, only expecting a rise of 29.7 percent.

Research firm eMarketer meanwhile said that Google is expected to command a 61.6 percent share of the search ad market worldwide in 2017, up from 60.6 percent in 2016.

Google fiercely competes with rival Facebook in the mobile advertising space, and the two firms are said to account for 99 percent of the industry growth in digital advertising in 2016.

The downside is that mobile adverts tend to command lower prices than desktop ads, but growing volume seems to be more than making up the difference.

“Our excellent results represent a terrific start to 2017, with revenues up 22 percent versus the first quarter of 2016 and 24 percent on a constant currency basis,” said Ruth Porat, CFO of Alphabet. “We clearly continue to benefit from our ongoing investments in product innovation and have great momentum in our new businesses across Alphabet.”

Other Bets

The strong advertising performance is especially impressive considering there had been an advertiser boycott of YouTube by some firms, concerned at their ads appearing alongside videos carrying extremist, homophobic or anti-Semitic messages.

Meanwhile Google’s non-advertising revenue, which is made up of the cloud computing business, the Pixel smartphone and the Play store, also grew dramatically in the quarter, jumping 49.4 percent to $3.10bn (£2.4bn) from $2.1bn (£1.6bn) a year earlier.

But Alphabet of course has its fingers in a lot of different ventures, including its ‘Other Bets’ unit which compromises its Waymo self-driving car business, Google Fiber, thermostat-maker Nest and the life sciences firm Verily.

Revenues at this ‘Other Bets’ division climbed to $244m (£189m), up from $165m (£127m) in the year-ago quarter, mostly thanks to Nest, Verily and Fiber.

But this ‘Other Bets’ unit is also losing money, as losses increased to $855m (£661m) from $774m (£598m) in the year-ago quarter.

But then again, with financial performance like this, Alphabet can certain afford to indulge its R&D teams.

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