Alphabet Profits Surge, But So Do Costs

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Google’s parent sees big rise in profits and revenue, but costs rise dramatically as workforce balloons

Alphabet has posted a strong set of first quarter financial results amid concern at the rising costs at Google’s parent firm.

Revenue grew 26 percent and profits soared by 84 percent thanks in part to strong advertising demand.

This was despite the current debate surrounding online privacy following the Facebook and Cambridge Analytica data sharing scandal.

Strong financials

But Alphabet seems to have shrugged off these concerns after it posted a net profit of $9.4bn (£6.7bn) for the quarter ending 31 March, compared to $5.4bn (£3.9bn) a year ago.

That $9.4bn profit blew past Wall Street estimates of $6.56bn (£4.7bn), according to Thomson Reuters I/B/E/S.

Sales meanwhile were equally healthy at $31.1bn (£22.3bn) compared to $24.7bn (£17.7bn) in the same year-ago period.

This was (again) well above average analysts’ estimate of $30.3bn (£21.7bn).

Alphabet said that much of the growth was down to higher pricing for online ads on its Google search engine, YouTube, apps and websites.

But total costs and expenses rose from $18.2bn (£13bn) a year earlier to $24.1bn (£17.3bn) in this past quarter.

Matters were not helped as the number of staff rose from 73,992 last year, to 85,050 currently. This was in part because in the first quarter Nest joined forces with Google’s hardware team. Google also acquired 2,000 employees in Taiwan from HTC Corp.

“Our ongoing strong revenue growth reflects our momentum globally, up 26 percent versus the first quarter of 2017 and 23 percent on a constant currency basis to $31.1 billion,” explained Ruth Porat, CFO of Alphabet and Google.

“We have a clear set of exciting opportunities ahead, and our strong growth enables us to invest in them with confidence,” she said.

Advertising spend

“The strong economy has companies spending more on advertising,” analyst Ivan Feinseth from Tigress Financial Partners was quoted by Reuters as saying. “Google continues to dominate both mobile and desktop search” and there will be “very little effect” from Facebook privacy data fallout, he said.

Nevertheless, the arrival of the European Union’s new General Data Protection Regulation (GDPR) on 25 May, does have some investors worried.

The GDPR rules will give ordinary people more control over their data.

The rules also significantly increase the fines companies will have to pay for data breaches.

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Author: Tom Jowitt
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