San Francisco: Alphabet Inc. beat projections for third-quarter sales and earnings after a surge in Google ad volume helped the web-search giant shrug off concerns about regulatory scrutiny and an expensive foray into hardware.
Sales for the quarter rose to $22.27 billion and profit was $9.57 a share, the company said. Analysts on average estimated sales of $22 billion on earnings of $8.34 a share.
“We had a terrific quarter, with revenues up 24% year on year, reflecting strength across Google and Other Bets,” chief financial officer Ruth Porat said in the statement. This is the first time the CFO praised Other Bets, Alphabet’s non-internet projects, in an earnings release. Alphabet shares rose 2.9% in after-hours trading.
Porat highlighted strong performance from Google’s desktop and mobile businesses, and its YouTube online video operation.
During the quarter, two events raised questions about how long Google could keep up robust revenue and profit growth: another turn in the ongoing European regulation drama, and a deeper investment in devices.
In September, the deadline arrived for Google to meet demands for the European Union antitrust case on shopping ads. Google agreed to tweak its paid search results for products in the continent, although it’s still appealing the charges. These product ads have helped drive sales and profit growth, but Google investors are more concerned about a probe into Google’s Android software on mobile devices, where Google’s ads are growing.
Also in September, Google agreed to pay $1.1 billion for about 2,000 engineers from HTC Corp, in effect an acquisition of skilled hands to expand Google’s line of Pixel smartphones. The new hardware business is a pillar of Google’s fight against Apple Inc. and Amazon.com Inc. in the next wave of computing devices. Yet building and selling hardware tends to depress margins, and it’s a market Google has struggled with historically.
Google doesn’t break out device sales. However, the company’s Other Revenue category includes the hardware business. Revenue there was up 39% to $3.41 billion. That segment also includes sales from Google’s app store and its cloud-computing unit, where Alphabet has heavily invested.
Alphabet’s more ambitious business units generated the most sales ever in a quarter. Other Bets, subsidiaries like its self-driving car program, Waymo, and home-device maker Nest, continued to pare expenses as well. The group lost $812 million in the quarter, down from $865 million in the same period in 2016. Overall, the units reported sales of $302 million, primarily from Nest and the Google Fiber broadband service.
Costs were mainly reduced by pulling back on an expansion of the Fiber business. “We paused the rollout to improve the technology. The reduced capex really reflects that we slowed down the build out,” Porat said. Bloomberg
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