Google results impress on YouTube and cloud growth
Google executives projected confidence in Android and other
businesses, giving investors no signal that a costly regulatory
crackdown in Europe would curb sales and profit anytime soon.
Parent company Alphabet Inc posted second-quarter results that
walloped Wall Street expectations, while chief executive
officer Sundar Pichai hinted at new untapped advertising
opportunities and highlighted growth at video service YouTube
and the cloud arm. The shares jumped as much as 6.1 percent in
extended trading, putting them on course for a record.
The monster quarter came despite a regulatory backlash in
Europe, rising questions about Google’s massive data collection
and clashes with advertisers over inappropriate content on
YouTube.
That had quelled analysts’ expectations ahead of the results on
Monday.
Alphabet reported two different profit figures to account for a
record $5 billion fine Europe imposed last week for violating
competition law with Google’s Android mobile software.
Excluding that, Alphabet said profit was $11.75 a share.
Google plans to contest the ruling. Even including the record
fine, the company generated $3.2 billion in net income during
the second quarter.
On the earnings call, Pichai suggested the company wouldn’t
dramatically alter its Android strategy. “I’m confident that we
can find a way to make sure Android is available at scale to
users everywhere,” he said.
Google gives Android to smartphone makers for free, part of the
reason it’s the most popular mobile operating system. Pichai’s
comments suggest the company will continue the approach.
Google also shrugged off the General Data Protection
Regulation, a European privacy law that started in May and
limits targeted advertising.
“There do not appear to be any signs that should cause a
meaningful slowdown any time soon, as fines from the European
Commission are not likely to hamper Alphabet’s growth rate,”
Brian Wieser, an analyst at Pivotal Research Group, wrote in a
note to investors.
“Conversely, regulatory changes such as GDPR in Europe (and
similar laws implemented elsewhere) could have the effect of
reinforcing Alphabet’s growth.”
Google has continued to give search ads more prominent space on
mobile phones and bundle more of its ads products together,
helping to fuel the brisk sales growth. Chief financial officer
Ruth Porat suggested that the company would not sacrifice
investment in its cash cow of advertising in favor of other
bets like autonomous cars and delivery drones.
“One of the biggest opportunities for investment continues to
be in our ads business,” Porat told analysts on the earnings
call. “I don’t want to leave you with the notion that the
investment is just going to the new businesses.”
Google’s advertising business grew 24%, pushing total Alphabet
revenue, minus partner payouts, to $26.24 billion during the
second quarter. Analysts were expecting $25.55 billion,
according to data compiled by Bloomberg. Those gains came even
as Amazon.com Inc. revs up its own ads business.
Pichai highlighted rising use of the company’s digital maps,
particularly in emerging markets. He said Google is exploring
more ways to insert promoted slots and ads into its Maps
service, which has had limited commercial applications to date.
A larger share of Google’s ad dollars went to its own digital
properties, including the search engine and YouTube, rather
than outside websites that run its ads. Google properties
revenue jumped 26 percent to $23.3 billion.
That leap reflects a recent push by Google to get marketers
buying across more of its advertising channels. “They’re using
the packaged deal, with all their properties, with a much
stronger sell,” said Marco Rimini, chief development officer at
WPP Plc’s Mindshare media agency.
While second-quarter sales jumped, so did costs for the
technology giant. Google’s capital spending climbed to $5.3
billion, up 87% from the same period in 2017. Porat highlighted
spending on sales and marketing for Google’s cloud division,
which is hosting its marquee conference later this week.
The sums Google pays out to websites and mobile partners to
distribute its search engine and ads — called Traffic
Acquisition Costs – also rose to $6.4 billion for the quarter.
Still, that was 23 percent of ad revenue, down from 24 percent
in the first quarter of 2018.
“TAC came in lower than expectations which is a clear positive
takeaway from the quarter,” Dan Ives, head of technology
research at GBH Insights, wrote in a note to investors.
Investors are also looking for signs of growth beyond
advertising, such as Google’s cloud-computing business. The
company’s other revenue bucket, which includes cloud, hardware
and app sales, grew 37% to $4.4 billion in the second quarter.
Pichai mentioned new cloud customers including Domino’s Pizza
Inc, SoundCloud Ltd and PricewaterhouseCoopers LLP, during the
call with analysts.
Other Bets, the home of Google’s riskier, experimental
businesses, lost $732 million in the quarter, versus a loss of
$633 million in the same period a year earlier.
Read: Google to be fined record $5
billion by the EU over Android
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