Google’s advertising push generates record profit for Alphabet

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Google owner Alphabet on Tuesday reported higher than expected ad sales in the third quarter, a sign the company is overcoming new limits in mobile user tracking and online shopping is more popular than ever in the world. approaching the end of the year celebrations.

Thanks to its search engine, YouTube video service, and web partnerships, Google sells more internet advertising than any other business. Demand for its services has increased over the past year as the pandemic has forced people to spend more time online and their new habits have persisted.

Google’s ad revenue rose 41% to $ 53.1 billion (roughly Rs. 3,980,010 crore) in the third quarter. Alphabet’s overall sales jumped to $ 65.1 billion (roughly Rs. 4 87,730 crore), above the average estimate of $ 63.3 billion (roughly Rs. 4 74,250 crore) among analysts monitored by Refinitiv.

“The digital shift of consumers is real and will continue even as we start to see people returning to stores,” said Philipp Schindler, chief commercial officer at Google. “The underlying takeaway is that people want more choice, they want more information, more flexibility, and we don’t see that reversed.”

Shares fell 0.93% to $ 2,760.19 (around Rs. 2 lakh) after the after-hours financial results were released.

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Quarterly profit was $ 18.936 billion (roughly Rs.141,860 crore) or $ 27.99 (roughly Rs.2,100) per share, beating expectations of $ 24.08 (roughly Rs.1,800) per share and marking a third consecutive quarter of record profits. Alphabet’s profits are subject to large fluctuations as accounting rules require the company to measure unrealized gains from its investments in startups as revenue.

Investors had prepared for some selling challenges for Google.

Consumer concern about how Google and other companies are using their surfing behavior to profile them and then choose which ads to serve has grown. In the latest challenge, Apple, whose iPhone devices account for half of the smartphones in the United States, has given its users more control to stop tracking in recent months. The change led advertisers to recalibrate their spending to make Google rival Snap, and Facebook said it hurt their sales in the third quarter.

Regulatory control

Alphabet CFO Ruth Porat reported a “modest impact” on YouTube ad sales thanks to Apple’s efforts. But analysts said Google overall was less affected than its peers because its search engine collects user interest data that is valuable to advertisers and unmatched in the industry.

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“They are almost completely immune to Apple’s changes,” said Collin Colburn, analyst at technology consultancy Forrester.

Other businesses have also faced downturns as advertisers slashed spending as they struggled to recruit staff and keep shelves stocked amid hiring and supply chain challenges caused by the pandemic. . Schindler said supply chain challenges only affected Google’s auto ad sales.

Google Cloud, which follows Amazon and Microsoft in terms of cloud services market share, increased revenue 45% to $ 4.99 billion (roughly Rs 37,400 crore), slightly below estimates of 5.2 billion dollars (about Rs 38,980 crore).

Alphabet’s total costs rose 26 percent to $ 44.1 billion (roughly Rs.330,575 crore) in the third quarter, and the company’s workforce size exceeded 150,000 employees.

Alphabet shares have outperformed those of many large peers since the end of last year, rising about 57%. Microsoft is up 39%, Facebook 20% and Amazon 2% over the same period.

But Alphabet shares are trading at a slight discount to Facebook, the Internet’s second-largest online ad seller. Facebook is trading at 6.8 times expected revenue over the next 12 months, compared to 6.4 times for Alphabet.

In recent weeks, Facebook has been inundated with accusations from a former employee who leaked thousands of confidential company files to the media and filed complaints with the US securities regulator over alleged misrepresentation from the company about its risks of hosting inappropriate content.

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Google has been caught in some of the fallout. A YouTube policy official testified before the U.S. Congress earlier Tuesday alongside other companies about the harms of social media for young users.

Investors are also awaiting further changes in Google’s business following a regulatory review. US and other authorities have alleged that some of the company’s advertising and research practices are anti-competitive, although the company claims they must benefit users. In a concession to critics last week, Google said it would reduce some of the fees it collects for apps on its Play app store starting next year.

But the move could end up generating new revenue for Google if it prompts companies like music streamer Spotify to start selling subscriptions through their apps and give Google 10 to 15 percent of the money.

Alphabet’s Porat said on Tuesday that earlier reductions in gaming fees would reduce sales.

© Thomson Reuters 2021


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