Alphabet trounces profit estimates as Google reins in costs

On Monday, Alphabet Inc. reported that expenses from its ‘Google search business grew more slowly in the second quarter while revenue rose more steeply than analysts had anticipated’, boosting profit above Wall Street targets and pushing shares up 3.6 percent after hours.

YouTube, a Google-owned streaming service, has increased spending on video content to keep consumers from shifting to offerings from Netflix Inc. and expanding media conglomerates such as AT&T Inc. Government pressure to improve moderation of user-created content has forced Google to hire more analysts.

Google Chief Executive, Sundar Pichai told analysts that investments in artificial intelligence software meant to better predict where to place ads are making its services more attractive to advertisers. The company is selling more ads as its YouTube video service and Google search to grow globally.

But those issues have yet to halt Alphabet, which has grown quarterly revenue at least 20 percent year-over-year for two straight years. Google’s dominance in online advertising has been challenged this year by the antitrust battle over its Android mobile software, which led to a $5 billion fine for the quarter, and other regulatory actions, including new European privacy rules.

Profit margins have dipped as more ads get shown on mobile devices, where Apple Inc and other firms charge fees to distribute Google search on their devices and apps. Net profit dropped to $3.2 billion from $3.5 billion, due to the fine, but analysts focused on operating results.

“There was never a question about Google’s dominance of a buoyant digital ads market,” said analyst Richard Kramer of Arete Research.

Google in the second quarter entered the second year of its latest multi-year deal with Apple, which analysts said helped even out costs. The quarterly growth rate of what the company pays ad partners, called traffic acquisition costs, fell for the first time in three years, which Atlantic Equities analyst James Cordwell described as the “most impressive” piece of the results.

Operating margin rose to 24% from 22% last quarter, excluding the $5 billion antitrust fine issued last week by the European Commission over Google’s anticompetitive licensing of Android software. The margin was down from 26 percent a year ago.

by Sawan Kumar on July 25, 2018

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