By Rolfe Winkler and Laura Stevens
Amazon.com Inc. and Google parent Alphabet Inc. reported booming
quarterly sales and profits, showing that the tech giants continue
to extend their dominance and shuck off concerns that might have
dampened growth.
Alphabet on Thursday said net profit in the latest period grew
29%, with no indications yet of an impact from a backlash that
began late in the quarter from advertisers worried about their
brands appearing near objectionable content online.
Amazon, meanwhile, said first-quarter profit jumped 41%, marking
its eighth straight quarter in the black, even as it continues to
pour investment into expansion in new areas. Amazon's longest
earnings streak since 2012 affirmed confidence among investors --
who had already driven its shares up 53% in the past year -- that
Amazon has turned into a profit machine as well as a growth
machine.
Alphabet Chief Financial Officer Ruth Porat said success in its
core operations is helping it expand in other areas. "The strong
performance in our advertising business allows us to take bigger
bets within Google to fuel the growth of additional revenue
streams," she said.
Strong results from Microsoft Corp. and Intel Corp. provided
further evidence that technology's juggernauts have nurtured
businesses they helped found, such as cloud computing, e-commerce
and online advertising, into full industries.
Still, the industry is entering a time period of heavier
investments as autonomous vehicles, drones and robots take off,
which analysts warn could consume more capital resources. And the
increasingly prominent position the tech giants occupy in society
as well as in business exposes them to new kinds of risks, such as
the broadcasting of violent episodes on Facebook Inc.'s live video
tool.
A fuller picture of the tech industry's health will come next
week when Apple Inc. and Facebook report quarterly results.
Amazon and Alphabet's stocks hit new highs in after-hours
trading. The boost to Alphabet's market cap was about $25 billion
-- equivalent to the value of Snap Inc., the parent company of
Snapchat, the mobile messaging service that went public last
month.
"They're becoming bigger and bigger and their growth rates are
unchanged, " said RBC Capital Markets analyst Mark Mahaney, noting
that Alphabet has increased revenue in its core segment by at least
20% every quarter for seven straight years and Amazon has done the
same for over four years.
Google credited its growth to the strength of its advertising
business on mobile phones and on its YouTube video site. It seemed
to avert a crisis when advertisers discovered in recent weeks that
their brands appeared alongside offensive content on YouTube. Major
companies including Coca-Cola Co. and Wal-Mart Stores Inc. pulled
their ad spending from Google except for targeted search ads. That
boycott didn't dent Google's growth: Advertising revenue jumped 19%
in the first quarter to $21.4 billion.
Sundar Pichai, chief executive of Google, said the company had
done "thousands and thousands of calls" with advertisers to address
the issue, pointing to new "safeguards" to address their concerns.
The impact of the protest could be felt more in the second quarter,
if it picks up steam.
In recent years, Google's growth engine has shifted from its
traditional search advertising on desktop computers to mobile
advertising, YouTube and automated ad-buying systems. The number of
paid clicks on Google's ads soared 44% in the first quarter
compared with the year-ago period, benefiting from rising
mobile-first internet usage.
Google has come to dominate the online advertising market along
with Facebook. The digital giants accounted for an estimated 77% of
the U.S. online advertising market in 2016, up from 72% the year
before, said Pivotal Research analyst Brian Wieser, analyzing data
published by the Interactive Advertising Bureau.
Google and Facebook captured 99% of the online ad industry's
revenue growth in 2016, estimated Mr. Wieser. On balance the rest
of the industry was flat.
The question plaguing Amazon was whether the online retail giant
could sustain its growth despite substantial spending on everything
from international expansion to video content. Amazon has long
plowed most of its revenue back into product development and
operations, including massive warehouses to speed products to
customers. In recent periods Amazon has shown some spending
discipline while it expands its operations overseas, bolsters its
shipping infrastructure and broadens its library of movies and
shows.
Analysts expect the phase to last at least through mid-2018, in
part due to Amazon's promise to hire 130,000 U.S. workers during
that time frame.
A big piece of that spending is coming in international markets
like Mexico and India, where the company is building out its Prime
offerings and competing against heavily entrenched incumbents. The
international business has been stuck in the red in recent
quarters. That remained the case in the first quarter, as the
division reported an operating loss of $481 million. Sales
increased 15.6% to $11.06 billion.
Amazon's financial chief, Brian Olsavsky, said the company is
boosting investments in a number of areas, including in video
content, its Echo personal-assistant speakers and its Prime
subscription program. Amazon is also investing heavily in
warehouses due to strong growth for its business fulfilling orders
for sellers on its site.
"We're continuing to look for things that customers love, that
can grow to be large, that we think will provide strong financial
returns in the long run, and that also can last for decades," Mr.
Olsavsky said.
One of those areas is transportation. The retail giant has also
started laying the groundwork for its own shipping business to add
capacity for itself, with the grander ambition of one day hauling
and delivering packages for itself, other retailers and consumers,
according to people familiar with the matter.
In the first quarter, Amazon said it is building its first air
hub in Kentucky. It is also planning to add airfreight capacity for
Chinese customers. The company is leasing up to 40 planes, with 18
planes currently in service, and has more than 4,000 dedicated
truck trailer hitches as it aims to move more of its goods itself.
And it has rolled out delivery in as little as an hour to more than
45 cities across eight countries.
Shipping costs rose 34% in the first quarter to $4.38 billion, a
lower rate compared with a year ago. "The ability to control
shipments within our network has gone up and we think the cost is
very good," Mr. Olsavsky said.
Analysts flagged one concern for Amazon in the quarter: Growth
in the company's all-important Amazon Web Services division
continued to shrink. The decade-old cloud-services operation, which
rents computing power to a variety of startups, government agencies
and other corporations, has become a major factor in Amazon's
recent streak of profitability.
The division is facing tougher competition from Microsoft and
Google, prompting concerns about whether the growth can continue on
pace -- especially amid price wars.
Microsoft's Azure cloud-computing business again posted torrid
growth on Thursday as corporate customers adopt the service to
handle larger pieces of their computing operations. Office 365, the
online version of Microsoft's widely used productivity software,
reported huge gains as well, as businesses increasingly subscribe
to email, word-processing and spreadsheet applications that run in
Microsoft's data centers.
Intel posted an increase in first-quarter profit, helped by an
uptick in PC demand. CEO Brian Krzanich said selling price strength
across nearly every segment of the business in the quarter
"demonstrates continued demand for high-performance computing,
which will only increase with the explosion of data."
--Jay Greene and Ted Greenwald contributed to this article.
Write to Rolfe Winkler at rolfe.winkler@wsj.com and Laura
Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
April 28, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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