Alphabet Profit Soars 21 Per Cent

Google owner Alphabet, has reported its fastest growth rate in two years as companies bought more ads on its search engine and other products, plus users clicked more on those ads.

The company’s revenues rose 21 per cent to $US21.5 billion in the second quarter over a year prior. Excluding payments to advertising partners, revenue was $US17.5 billion.

Net profit for Alphabet rose to $US4.88 billion, or $US7 a share, from $US3.93 billion, or $US4.93 a share, a year prior. Excluding certain items, Alphabet earned $US8.42 a share, beating analysts’ estimates of $US8.04 a share.

There are a few things to keep the company’s owners awake at night. Yield – expressed as cost per click – has fallen seven per cent in a year. Over the same period its acquisition costs as expressed by the payments it makes to third parties has continued to rise.

As a result both revenues and profits missed expectations and investors heading for the exit driving the share price down by six per cent. (They will be back soon enough.)

In a statement, Alphabet chief financial officer Ruth Porat said the results “reflect the successful investments we’ve made over many years in rapidly expanding areas such as mobile and video. We continue to invest responsibly in support of our many compelling opportunities.”

Porat said the gains were from “increased use of mobile search by consumers, benefiting from our ongoing efforts to enhance the mobile search experience.” She also cited “solid growth in desktop and tablet search as well as continued strength in YouTube and programmatic advertising.”

One final note: just so we can say we told you so in a few years time. Porat is a cookie cutter Wall Street CFO, having been brought in from Morgan Stanley. Her comments to analysts seem to suggest that Google’s famous give-it-a-go culture for funding novel ideas might be fraying. She said investments would only be funded “if teams meet milestones we set as part of our 2016 budgeting process.”

Seems sensible enough. But you wonder if sensible thinking would have given us Google Maps… or encouraged a search company to build a mobile operating system. Just saying.

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