Google Profits Surge on Strong Ad Demand--2nd Update
July 28 2016 - 5:02PM
Dow Jones News
By Jack Nicas
Google parent Alphabet Inc. rode strong advertising demand to a
24% increase in profits, as it continues to capture users and
advertisers shifting to mobile.
Alphabet's growth continued in the second quarter as companies
bought more ads on its search engine and other products, while
users increasingly clicked on those ads. Alphabet revenue, fueled
almost entirely by Google's advertising business, rose 21% to $21.5
billion in the second quarter from a year ago. Excluding payments
to advertising partners, revenue was $17.5 billion, beating
analysts' estimate of $16.86 billion.
Net profit for Alphabet rose to $4.88 billion, or $7 a share,
from $3.93 billion, or $4.93 a share, a year prior. Excluding
certain items, Alphabet earned $8.42 a share, beating analysts'
estimates of $8.04 a share.
Google is maintaining such growth partly because the company has
been able to capture advertisers and users as they shift to mobile
devices from traditional desktop computers. Google's Android
smartphone software gives its search engine and other services top
billing on more than a billion devices, while the company also pays
Apple Inc. to make Google the default search engine on iPhones.
Google has said more than half of its searches now come on
mobile devices, and some analysts estimate more than half of its
revenue comes from mobile. Advertisers' spending on mobile search
ads increased 63% in the second quarter over a year prior, while
overall search-ad spending rose just 10% over the period, according
to marketing-technology firm Kenshoo Ltd.
Alphabet stock has had a sluggish year, sliding 1.6% in 2016,
partly because the company has struggled to meet expectations.
Alphabet earnings have missed analysts' estimates in eight of the
past 12 quarters.
In after-hours trading Thursday, Alphabet shares rose 4.7% to
$802.
Meanwhile, Google's chief rival, Facebook Inc., is gaining
strength. Facebook said Wednesday that its second-quarter profit
nearly tripled to $2.1 billion over a year ago, easily beating Wall
Street estimates. Mobile also has fueled Facebook's growth,
accounting for 84% of its $6.2 billion in second-quarter
advertising sales.
While Google still controls about 31% of the roughly $187
billion world-wide digital-ad market, Facebook has stolen about 3
percentage points of market share from Google, rising to 12% from
8.6% in 2014, according to research firm eMarketer.
One downside to mobile's rise for Google has been a simultaneous
decline in the average amount that advertisers pay Google per ad
click. Mobile ads are generally less expensive than desktop ads, so
as the number of mobile ads has increased, Google's cost per click
has declined.
But analysts say there are some signs ad buyers are bidding more
for mobile ads, and on Thursday Google said its cost per click
decreased 7% in the second quarter over a year prior, compared with
a 9% decline in the first quarter.
Thursday's results are the third time the firm reported as
Alphabet, a parent company created in October to house Google and a
series of "other bets," from home-automation firm Nest to the
research lab X. While the Google unit accounts for virtually all of
Alphabet's revenue, analysts and investors have closely watched
financial results of the other initiatives for a sense of how much
money they are losing. Revenue for those other bets increased to
$185 million from $74 million a year ago, and the operating loss
widened to $859 million from $660 million.
Cost controls have also been a recent focus since the arrival of
former Morgan Stanley executive Ruth Porat as finance chief last
year. Investors cheered Ms. Porat's hire, hoping she would step up
scrutiny of Alphabet's costs. Second-quarter total expenses
increased 20% to $15.53 billion, a slightly slower pace than
revenue grew.
Write to Jack Nicas at jack.nicas@wsj.com
(END) Dow Jones Newswires
July 28, 2016 16:47 ET (20:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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