Revenues from advertising from mobile devices have been the company’s growth engines – a strategic shift from the past.
Alphabet Inc.’s efforts to leverage its sizeable advertising business in mobile computing has paid off with its second quarter earnings giving a thumping beating to Wall Street analyst’s expectations.
Its results have put to rest long pending concerns on how the growth of mobile computing is going to have an effect on Google, whose Android operating system has a strong presence in the mobile market. Earlier, Google had relied on search traffic generated by desktop searches to power its prolific growth.
According to Colin Gillis, an analyst with BGC Partners, advertisers typically pass less for user clicks for desktop ads, Google’s traditional strength, in comparison to mobile ads. However, its strong earnings suggest that this trend is undergoing change.
“They’re doing an excellent job of pulling the mobile landscape through to being more efficient,” said Gillis.
Alphabet’s revenues have grown by 21.3% to $21.5 billion with its earnings jumping to $4.88 billion from its previous year figure of $3.93 billion.
With this information hitting the news circuits, Alphabet’s shares surged by 6.5% to $816 in after-hours trading on Thursday.
Sundar Pichai, Google’s Chief Executive, has also reported during a call with investors that the vibrant video market has also acted as an engine for the company.
In recent years, Google, Twitter and Facebook have gone very aggressive on the video market with advertisers willing to pay a premium for a few seconds of the user’s undivided attention.
According to Pichai, Google has made extensive use of artificial intelligence for the purpose of recommending videos to its users.
“Video is a huge component of digital content, and YouTube continues to shine. It’s a thriving home for creators,” said Pichai.
According to eMarketer, a market research firm, tech players, including Google are hoping to make big bucks from advertisers, who are likely to spend $70.6 billion this year, in the U.S. alone. YouTube, with more than 1 billion users, is positioned strategically to tap this market.
With Facebook reporting a hike of 63% in its advertising revenue, Google was under heightened pressure to deliver. The rivalry between the companies have intensified with advertisers shifting more of their budget towards mobile computing. Google’s healthy performance has shown there is room for both players in this burgeoning market, said Bob O’Donnell, an analyst with TECHnalysis Research.
“The back-to-back, stellar earnings by both Google and Facebook highlight the continued growth of online advertising and its impact on more traditional media,” said O’Donnell.
Revenues from Alphabet’s Other Bets rose by 150% to $185 million, while its operating losses widened to $859 million.
This division includes businesses including Nest, Google Fiber, its self-driving car project and X – its research facility that works on “moon shot” ventures.
Ruth Porat, Alphabet’s CFO who has been widely credited for bringing a culture of greater financial discipline into the company, has disclosed that she will continue to scrutinise the Other Bets business.
“I’ve commented many times that our focus on long-term revenue growth does not give us a pass on managing expenses,” said Porat to investors.
Revenues from Google’s ad venture surged by 19.5% to $19.14 billion where it gained a 29% rise in paid clicks – where advertisers pay only if a user clicks on their ad.
Excluding items, Alphabet’s earnings were $8.42 per share, beating analyst’s average estimate of $8.04, according to Thomson Reuters I/B/E/S.