Date
11 December 2017
Alphabet, the parent company of Google, has enjoyed torrid growth as advertising moves from traditional media to the internet and consumers flock to an ever-expanding array of digital devices. Photo: AFP
Alphabet, the parent company of Google, has enjoyed torrid growth as advertising moves from traditional media to the internet and consumers flock to an ever-expanding array of digital devices. Photo: AFP

Alphabet advertising revenue jumps

Alphabet Inc. reported stronger-than-expected advertising sales and higher operating margins, driving shares up in after-hours trading as investors brushed off concerns about higher costs for acquiring mobile customers.

Third-quarter revenue for Alphabet, the parent company of Google, jumped 24 percent to US$27.8 billion, above the average analysts’ estimate of US$27.2 billion, Reuters reports.

Profit of US$6.7 billion, or US$9.57 per share, was well ahead of Wall Street estimates.

The company’s shares were up nearly 3 percent at US$1,020 after the bell. They have gained 25 percent this year.

Alphabet, along with much of the tech sector, has enjoyed torrid growth in recent years as advertising moves from traditional media to the internet and consumers flock to an ever-expanding array of digital devices.

While the company faces political pressures, especially in Europe, over its growing dominance and its role in spreading propaganda online, those problems have yet to hit the bottom line.

The third quarter was the 15th in a row in which the company has shown double-digit, year-over-year sales growth. Advertising sales at Google, Alphabet’s main operating unit, account for the vast majority of the company’s revenue.

Investors have been increasingly concerned about a sharp rise in costs for getting ads in front of mobile users as Google pays a growing cut of ad sales to Apple Inc. and other companies that integrate Google search into mobile products and services.

Those costs are referred to as traffic acquisition costs, or TAC, and they rose 54 percent in the quarter, accounting for 12 percent of ad sales. But analysts said revenue growth and cost controls made that increase less of an issue.

Google’s “other revenue” line, which includes hardware such as the Pixel smartphones and Home speakers as well as the cloud computing business, also enjoyed solid growth. Sales from non-ad businesses rose 40 percent from a year ago to US$3.4 billion in the quarter.

Google is playing catch-up with Amazon Web Services in the business of providing corporate computing services via large data centers. The company does not break out its cloud revenue, but Jefferies analysts estimate Google Cloud Platform is about 15 percent of Google’s other revenue.

Google is also trying to take on Apple in the high end of the smartphone business with the Pixel. Google’s Android operating system already powers most non-Apple smartphones.

But Google’s second-generation Pixel had a rough debut last week, with the company investigating user complaints of a faulty screen and poor call quality.

Meanwhile, Microsoft Corp. reported a better-than-expected quarterly profit as demand for its cloud computing services for companies rose and its personal computer software business stabilized.

The company’s focus on fast-growing cloud applications and platforms is helping it beat slowing demand for personal computers that has hurt sales of Windows – the software that powered the company to the top in the 1990s.

Under chief executive Satya Nadella, Microsoft’s cloud business – which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform – has emerged as a major source of growth.

Revenue from Microsoft’s intelligent cloud business rose nearly 14 percent to US$6.92 billion in Microsoft’s fiscal first quarter, ended Sept. 30. Analysts on average had expected US$6.70 billion, according to financial data and analytics firm FactSet.

Revenue from Azure, which competes with Amazon.com Inc.’s Amazon Web Services and offerings from Alphabet Inc.’s Google, IBM and Oracle Corp., grew 90 percent compared to a 97 percent growth rate in the preceding quarter.

Azure’s strong performance helped lift the gross margin at Microsoft’s cloud business to 57 percent, said Stephanie Rodriguez, director of investor relations for Microsoft.

Net income rose to US$6.58 billion, or 84 cents per share, from US$5.67 billion, or 72 cents per share, a year earlier. Revenue rose 12 percent to US$24.54 billion.

Intel Corp., meanwhile, raised its full-year revenue and profit forecasts, helped by strong growth in its data center business.

For the full year, the world’s largest computer chipmaker said it expects to earn, on an adjusted basis, US$3.25 per share on revenue of US$62 billion, beating analysts’ estimate of US$3.01 per share on revenue of US$61.4 billion, according to Thomson Reuters I/B/E/S.

Revenue from Intel’s higher-margin data center business rose 7 percent to US$4.9 billion in the third quarter, beating analysts’ expectation of US$4.79 billion, according to financial data and analytics firm FactSet.

Net income jumped to US$4.52 billion, or 94 cents per share, from US$3.38 billion, or 69 cents per share, a year earlier. 

– Contact us at [email protected]

CG

EJI Weekly Newsletter

Please click here to unsubscribe