Strong growth in mobile search, programmatic advertising and smartphone use in Asia helped accelerate revenue at Alphabet to the fastest rate in almost five years, surpassing estimates for sales and earnings in the third quarter.
Shares in Alphabet, parent company of Google, Waymo and Verily, soared to more than $1,000 in after-hours trading in New York to an all-time high. It beat expectations on earnings by more than $1 a share.
Sales rose 24 per cent year-on-year to $27.8bn, above the consensus forecast for $27.2bn, overcoming concerns that revenue could have been affected by big brand marketers pulling adverts from YouTube because of concerns about them appearing next to unsavoury content.
Ruth Porat, Alphabet chief financial officer, said Google had seen “tremendous results in mobile search”, along with substantial growth in network revenues from programmatic advertising and cloud, Google Play and hardware revenue.
Revenue from Asia-Pacific rose 29 per cent year-on-year to $4.2bn, or 31 per cent on a constant currency basis, as Google benefited from a secular shift in mobile and efforts to tailor products to the region, for example, launching a new payments app called Tez just for India.
Sundar Pichai, chief executive of Google, said the company had been laying a foundation in Asia for a “very, very long time” with “great” product teams and now advertisers are coming on board. He said they were looking at Asian markets with “a lot more thought”, not just transferring technologies from the West. “We will invest a lot in the years ahead,” he said.
Alphabet’s diluted earnings per share for the third quarter were $9.57, significantly higher than the average analyst estimate for $8.33, and up 32 per cent from the same period the year before. Net income was $6.7bn.
Paid clicks were up 47 per cent in the period compared to last year, while cost per click continued to fall, down 21 per cent, as mobile dilutes desktop search.
The cost of acquiring traffic for search also rose significantly, by 32 per cent year-over-year, raising concerns that at least one of Google’s partners may have increased prices. Traffic acquisition costs were 23 per cent of advertising revenue, up from 21 per cent for the same period the year before.
Ms Porat said the increase “continues to reflect the fact that our strongest growth areas — namely mobile search and programmatic — carry higher traffic acquisition costs”.
Capital expenditure rose to $3.5bn in the quarter, from $2.8bn, most of it spent on Google including on data centres, content acquisition for YouTube and hardware-related costs. During the quarter, Google signed a $1.1bn smartphone deal with Taiwan’s HTC and released its latest Pixel phone.
“Other Bets” — the divisions apart from Google, primarily hardware maker Nest, connectivity provider Fiber and life sciences division Verily — contributed revenue of $302m, up from $197m in the same quarter the year before. Their operating loss slightly narrowed from $861m in the third quarter last year to $812m this year.
Waymo, the self-driving car unit, has launched in its sixth state, testing cars in the winter weather in Michigan, while Project Loon is sending air balloons over the hardest hit parts of Puerto Rico to beam down connectivity.
Google shares were up 4.4 per cent to $1,015.77.
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