Increase in Google advertising and online shopping result in record earnings for Alphabet

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Google owner Alphabet reported higher-than-expected third-quarter ad sales on Tuesday, a sign that the company is pushing new boundaries in tracking mobile users and that online shopping is as popular as ever over the holiday season.

Google sells more Internet advertising than any other company through its search engine, YouTube video service, and partnerships across the web. Demand for his services soared over the past year as the pandemic forced people to spend more time online and their new habits persist.

Google’s advertising revenue grew 41 percent to $ 53.1 billion in the third quarter. Alphabet’s total sales rose to $ 65.1 billion (approximately Rs.487,730 billion), above the company’s average estimate of US $ 63.3 billion (approximately Rs.474,250 billion) Analysts tracked refinitively.

“The shift in consumers to digital is real and will continue even when people return to business,” said Philipp Schindler, Google’s chief business officer. “The underlying insight is that people want more choice, they want more information, more flexibility, and we’re not seeing this reverse.”

Shares fell 0.93 percent to $ 2,760.19 (approximately Rs 2 lakh) after financial results were released after business hours.

Quarterly earnings were $ 18.936 billion (about Rs.141.860 billion) or $ 27.99 (about Rs. 2,100) per share, which is in line with expectations of $ 24.08 (about Rs. 1,800) .) per share and marked a third quarter in a row with a record profit. Alphabet’s earnings are volatile as the company uses accounting rules to evaluate unrealized gains on its start-up investments as income.

Investors were preparing for some sales challenges for Google.

Consumer concern about how Google and other companies use their browsing habits to profile them and then choose which ads to show is widespread. In the latest challenge, Apple, whose iPhone devices make up half of the smartphones in the US, gave its users more control over the past few months to stop tracking. The change caused advertisers to recalibrate their spending in ways that Google rivals Snap, and Facebook said it hurt their sales in the third quarter.

Regulatory review

Alphabet’s chief financial officer, Ruth Porat, said Apple’s efforts had had a “modest impact” on YouTube advertising revenue. However, analysts said that overall, Google was less affected than the competition as its search engine collects data on user interests that is valuable to advertisers and unmatched in the industry.

“You are almost completely immune to Apple’s changes,” said Collin Colburn, an analyst at technology consultancy Forrester.

Other companies have also faced slowdowns as advertisers cut spending as they struggled to staff and stock shelves amid recruitment and supply chain problems caused by the pandemic. Schindler said the supply chain challenges only affected Google’s auto ad sales.

Google Cloud, which ranks behind Amazon and Microsoft in terms of cloud services market share, increased sales 45 percent to $ 4.99 billion, slightly below the estimate of $ 5.2 billion.

Alphabet’s total cost increased 26 percent to $ 44.1 billion (approximately Rs.330.575 billion) in the third quarter, and the company’s workforce exceeded 150,000 employees.

Alphabet stocks have outperformed many large competitors since late last year, up around 57 percent. Microsoft rose 39 percent, Facebook 20 percent and Amazon 2 percent over the same period.

But Alphabet’s shares trade at a slight discount to Facebook, the No. 2 internet advertising company. Facebook is trading 6.8 times projected revenue over the next 12 months, compared to 6.4 times for Alphabet.

Facebook has been inundated in recent weeks with allegations from a former employee who leaked thousands of confidential company files to the media and filed complaints with the United States Securities and Exchange Commission for allegedly misrepresenting the company about its risks of hosting inappropriate content.

Google got caught up in some of the episodes. A YouTube official, along with other companies, testified in front of the US Congress on Tuesday about the harm social media caused to young users.

Investors also expect further changes in Google’s business as a result of the regulatory review. US authorities and other agencies have alleged that some of the company’s advertising and search practices are anti-competitive, despite the company claiming that they are intended to benefit users. In a concession to critics last week, Google announced that it would cut some of the fees it charges for apps on its Play App Store starting next year.

But the move could generate new revenue for Google if it gets companies like music streamer Spotify to sell subscriptions through their apps and give Google 10 to 15 percent of the sum.

Alphabet’s Porat said Tuesday that earlier game fee cuts would hurt sales.

© Thomson Reuters 2021

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