Alphabet Inc, Google's parent, posted a 21.3 percent increase in second-quarter revenue, exceeding analysts' expectations, as the tech giant continued to nudge its vast advertising business toward mobile and capitalised on the boom in video. The sharp revenue growth suggests that Google is successfully navigating the high-stakes transition from desktop to mobile advertising, said Colin Gillis, an analyst with BGC Partners.
Advertisers typically pay less for user clicks on mobile ads than on desktop ads, Google's traditional strength, but the strong earnings performance suggest that is beginning to change, he said. "They're doing an excellent job of pulling the mobile landscape through to being more efficient," Gillis said. The company's shares rose 6.5 percent to $816 in after-hours trading on Thursday.
Strong gains in the red-hot video market also drove the company's growth in the quarter, Google Chief Executive Officer Sundar Pichai said during a call with investors. "Video is a huge component of digital content, and YouTube continues to shine," he said. "It's a thriving home for creators." Alphabet's consolidated revenue rose to $21.50 billion in the three months ended June 30, from $17.73 billion a year earlier. Analysts on an average were expecting revenue of $20.76 billion, according to Thomson Reuters I/B/E/S.
Google's ad revenue increased 19.5 percent to $19.14 billion, while it notched a 29 percent rise in paid clicks, where advertisers pay the company only if a user clicks on the ad. Alphabet, which dominates the mobile ad market along with rival Facebook Inc, has been trying to beef up ad revenue from mobile and video businesses, both of which until last year were a little less profitable than its desktop business.
Despite the strong revenue growth, the falling cost-per-click on advertisements is cause for concern, said analyst Patrick Moorhead of Moor Insights & Strategy. "Advertisers aren't willing to pay as much for Google advertising," he said. Revenue at Alphabet's Other Bets business rose 150 percent to $185 million, while operating losses widened to $859 million.
The division includes broadband business Google Fiber, home automation products Nest, self-driving cars and X - the research facility that works on "moon shot" ventures. Alphabet Chief Financial Officer Ruth Porat, widely credited with bringing a culture of greater financial discipline to the company, suggested 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," she told investors.
Net income rose to $4.88 billion, or $7 per Class A and B common stock, from $3.93 billion, or $4.93 per share. Excluding items, the company earned $8.42 per share, beating analysts average estimate of $8.04, according to Thomson Reuters I/B/E/S.
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