Alphabet's Profits Stay Predictably Good in a Volatile Industry - New York Times
Google’s market share on desktop search is around 78 percent, but it is above 90 percent on mobile devices, according to research from NetMarketShare.com. What is more, on smaller mobile displays, Google’s ads occupy a large portion of the screen — making it more likely a user will click on them.
Clicks on Google ads increased 36 percent in the quarter, but what advertisers paid for each click decreased 15 percent.
Google is also sitting on many of the internet’s most valuable properties — the places where people go to stay in touch on email, find driving directions or seek out entertainment.
While clicks on Google’s ads across the internet are rising, they are growing faster on its own websites like YouTube. Alphabet does not break out results for YouTube, but the site continues to amass a huge audience. Google said more than a billion people watched YouTube every month, viewing hundreds of millions of hours of its videos every day.
Sundar Pichai, Google’s chief executive, said company assets like search, YouTube, Maps and Google Play, constituted “prime time in the mobile era.”
Even Alphabet’s unexpected hiccups are a little dull. The company’s earnings per share were $7.56, or 11 cents below analysts’ estimates. It said the reason for the shortfall was that it paid more in taxes. The company’s effective tax rate for the quarter was 22 percent, compared with 5 percent in the same quarter a year earlier. Alphabet said it paid more in United States taxes but did not explain why.
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Alphabet shares were down 2 percent in after-hours trading. The stock reached a record high on Wednesday.
While the dominance of the Google search engine seems unassailable today, Alphabet is investing heavily in new technologies that may threaten its stronghold. Devices like the Amazon Echo, a voice-activated smart speaker, portend a future where artificially intelligent digital assistants fetch information without needing to access a search engine directly.
During the quarter, Google introduced a smartphone called Pixel and Google Home, an Echo competitor. Both devices are vessels for the Google Assistant, the company’s artificial intelligence system. To promote those devices, Alphabet said it spent more on marketing during the quarter. Alphabet said its cost of revenue — an indicator of its spending which also included other costs like operating data centers — rose 30 percent during the quarter from a year earlier.
Google did not provide figures for how those products sold, but the “other revenue” category, which included hardware sales along with revenue from Google Play, rose 62 percent to $3.4 billion.
Part of the company’s financial stability came from Google’s creation of Alphabet in 2015. The reorganization into a holding company split the company’s core search business from a growing list of fledgling operations, like the newly minted Waymo — what used to be Google’s self-driving car project until it was spun off as an independent Alphabet company in 2016.
This move raised the pressure on the company’s so-called other bets, including its life sciences unit, Verily, and its home electronics unit, Nest, to prove that they could be profitable without the support of mother Google. In a sign of the independence of Alphabet companies, Verily announced on Thursday that Singapore’s sovereign fund, Temasek, will acquire a minority stake in Verily for $800 million.
Under the watch of Ruth Porat, Alphabet’s chief financial officer, the company has scaled back costs and — in some cases — the ambition of its speculative investments into new technologies. During the quarter, Alphabet said quarterly revenue from “other bets” rose 75 percent to $262 million, while operating losses narrowed to $1.09 billion from $1.21 billion a year earlier.
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