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Alphabet still spells p-r-o-f-i-t-s despite $2.7B EU fine

Google

Jul, 25 2017, 7:00 AM

Editor's note: Alphabet, the corporate parent of all things Google, continues to grow revenues despite a whopping $2.7 billion fine from the European Union. Technology Business Research Analyst Daniel Callahan takes a look at the profit-making machine.

HAMPTON, N.H. - Alphabet grew revenue $26 billion in 2Q17, a year-to-year increase of 21%. As per usual, the lion share of growth can be attributed to Google’s advertising business which grew 18% year-to-year to $22.6 billion. TBR believes Google has fervently worked on improving its advertising business, not only improving tools for webmasters and advertisers but also improving ad experiences for mobile and YouTube users.

The results of this activity netted Google a 52% year-to-year increase in aggregate paid clicks and a 23% year-to-year decline in aggregate cost-per-click.

However, traffic acquisition costs (TAC) also rose 28% year-to-year to $5.1 billion in 2Q17, representing 22% of Google advertising business revenues this quarter.

The European Commission’s fine to Google’s ranking practices in Europe played a significant role in Alphabet’s operating margin decline from 28% in 2Q16 to 16% in 2Q17. Other factors include growing TAC, headcount rising 13.5% year-to-year to 75,606 and capex spend on data center assets.

Outside of advertising, Google’s Other revenue increased 42% year-to-year which TBR believes is a result of increasing media sales in its Play! store along with increased traction with its enterprise products and cloud services.

Other Bets grew revenue 34% year-to-year to $248 million, albeit a drop in Alphabet’s large revenue pool.

(C) TBR





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