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Google’s first quarter under Alphabet continues strong growth in revenue and profit

Google’s first quarter under Alphabet continues strong growth in revenue and profit


Time to learn the ABCs of Alphabet

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Welcome to a new era of Google earnings. Or should I say, Alphabet earnings. Google has now been ingested as just one part of a larger holding company called Alphabet. Investors have been asking for more detail on Google's finances for a long time, and Alphabet was supposed to provide it. Unfortunately, while Google is now officially part of Alphabet, it won't break out the numbers on its core business from the moonshot projects like Google X and Life Sciences until next quarter.

Today's earnings focused on the strength of growth in mobile search. Google reported revenue of $18.67 billion and a profit of $4.7 billion. That means revenue rose 13 percent over the same period last year, while profit was up 27 percent. The company announced it plans to buy back a little over $5 billion in stock, which sent shares of Google soaring, up over 10 percent in after-hours trading.

The trend line in Google's core advertising business has been clear for some time. Cost per click, essentially what Google earns on each ad, has been falling. This is driven by the lower cost of mobile advertising and the diversification of Google business around the globe, where ad prices are often far lower than in the US. Luckily for Google, the overall volume of advertising has been rising fast enough to counteract that decline. Cost per click was down 16 percent, but overall clicks were up 23 percent.

Google has made moves over the last year to try and drive an increase in web searches on mobile, where much search activity is now happening inside of dedicated apps. Analysts were hoping for an update on how this initiative is faring, along with any details about Google's attempt to drive search traffic to Google or Google Now by deep linking directly inside of apps. There was little detail about exactly how this segment was performing, but Google insisted that its strong results were driven in large part by "substantial growth of mobile search revenue, complemented by contributions from YouTube and Programmatic Advertising."

Investors were also hoping for some detail around the revenue and income of YouTube. The service is estimated to bring in anywhere between $5–10 billion, and just yesterday made a big change to its business model with the introduction of a new subscription service, YouTube Red. That one quote in the earnings report was all they got so far, although there may be more on the earnings call with new Google CEO Sundar Pichai.

The final piece of the puzzle for Google earnings is the Play Store and Google's own hardware. Android is now by far the most widely used mobile operating system in the world, and Google earns money by selling apps and media to those smartphones and tablets. Google also increasingly sell its own hardware. It recently reported that it had sold 20 million Chromecasts, and has its own line of netbooks, phones, and tablets. The earnings report noted that "other revenue," which includes these two segments, grew at a pace of 11 percent year over year, amounting to about 10.5 percent of Google's total revenue this quarter.

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