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Inside Alphabet: Google mobile ad dominance spells growth

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Apr, 28 2017, 6:44 AM

Editor's note: Google's dominance in mobile advertising markets fueled Alphabet's revenue and profit growth in 1Q17, says Technology Business Research Analyst Jack Narotta. Plus: A snapshot of Alphabet's earnings report.

HAMPTON, N.H. - The combination of strong demand from brands and marketers to reach mobile device users powered Alphabet’s overall revenue in 1Q17. Revenue growth of 22.2% year-to-year, to $24.8 billion, allowed Alphabet to deflect the impact of rising traffic acquisitions costs and operating expenses related to Google’s seemingly-perpetual expansion, and in 1Q17 Alphabet nearly equaled 4Q16’s record amounts of gross and operating profits. Strong revenue growth in Alphabet's Other segment, which includes its cloud portfolio, the Play app store and hardware such as the Pixel smartphone and Nest thermostat, was also a contributor.

Mobile advertising has taken the reins of Google’s advertising business and powers the results of its advertising business. For the sixth consecutive quarter, Google’s total advertising revenue growth eclipsed 16% year-to-year; in 1Q17 total advertising revenue surged 18.8% year-to-year to $21.4 billion, or 86.5% of Alphabet’s total revenue.

An exponential increase in the volume of internet searches originating from mobile devices across Android and iOS ecosystems is a testament to the size of Google’s addressable market, and Google’s revenue growth illustrates its mortal lock on the digital advertising market. In 1Q17 Google leveraged new mobile advertising technologies and search algorithms to attract new advertisers to its platforms, and collaborated with its largest brands and marketers to develop new technologies to sustain engagement with YouTube viewers across PCs, smartphones, tablets and connected devices such as Google Home and Chromecast.

The profits generated by Google’s advertising businesses investments also support its artificial intelligence initiatives, its ambitions to become the leading enterprise-class cloud services provider and its desire to be the leading platform for content creators. Additionally, advertising profits offset the costs to support Alphabet’s esoteric initiatives in life sciences (Verily), home automation (Nest) and internet service delivery (Fiber), allowing Alphabet to freely invest in emerging technologies it believes have potential for growth.

In TBR’s 1Q17 Alphabet (Google) Initial Response, publishing April 28, 2017, we will provide analysis of the financial performance of Alphabet’s businesses, as well as discuss key developments during the quarter, such as the launch of the YouTube TV service and staffing changes in the Fiber business unit.

(C) TBR


Earnings report snapshot

Alphabet Inc. on Thursday reported first-quarter net income of $5.43 billion.

The Mountain View, California-based company said it had profit of $7.73 per share.

The internet search leader posted revenue of $24.75 billion in the period. Its adjusted revenue was $20.12 billion.

Alphabet shares have increased 13 percent since the beginning of the year, while the Standard & Poor's 500 index has climbed nearly 7 percent. In the final minutes of trading on Thursday, shares hit $874.25, an increase of 24 percent in the last 12 months.

Source: Associated Press






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