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Alphabet Q3 boosted by mobile business

27 OCT 2017

A strong performance in Asia and continued gains in mobile search helped push Alphabet’s revenue to its fastest growth in nearly five years during the third quarter.

The company’s CFO Ruth Porat, in an earnings call, hailed a “terrific quarter”, with revenue reaching $27.8 billion, a 24 per cent increase year-on-year, largely driven by advertising sales “powered by” mobile search.

She said the company also saw substantial growth in revenue from cloud, Google Play and hardware.

Net income of $6.7 billion was up from $5 billion in Q3 2016.

Google was again the major force behind Alphabet, generating $27.5 billion in revenue, while the company’s Other Bets division also saw a rise, reaching $302 million in revenue from $197 million in Q3 2016.

Porat said the revenue from Other Bets was primarily generated by hardware maker Nest, connectivity division Fiber and its life sciences division Verily, while adding car division Waymo and its connectivity business Project Loon are also seeing increased traction.

Losses for the Other Bets division, which Alphabet considers a strategic long-term play, narrowed from $861 million in Q3 2016 to $812 million in the recent quarter.

Asia growth
Some $4.2 billion of Alphabet’s revenue in Q3 was generated in Asia-Pacific, a 29 per cent increase year-on-year, fuelled by a larger advertising base and a continued drive by the company to focus on building products tailor-made for the region.

One apt example was the launch in September of Tez, a payments app made exclusively for the Indian market.

Also speaking on the earnings call, Google CEO Sundar Pichai said the company had been “laying a foundation” in Asia for a very long time, and it was now starting to see the benefits.

“Our products are very heavily used there,” he said: “And so we’ve worked hard to build a user base and then the mobile transformation is a secular shift there. That’s definitely driving accelerated growth. And it creates a virtuous cycle.”

He added the company planned to “invest a lot” in Asia in the future and will look at “these markets” with a lot more thought. He suggested the company will not simply apply their global products in the region.

Rising TAC
In his comments, Pichai also defended traffic acquisition costs (TAC), which rose 32 per cent in the quarter, reaching $5.5 billion.

In the company’s Q2 earnings, Porat had warned the company’s ever expanding advertising business could be subject to rising costs, given the shift to mobile platforms.

TAC represents the fees Alphabet pays out to smartphone partners and websites on which it places adverts.

Pichai said the deals represented “a win-win construct”, with Google performing better “when our partners do better”.

And Porat added the rising costs serve to represent a “very healthy” mobile and search business.

Author

Kavit Majithia

Kavit joined Mobile World Live in May 2015 as Content Editor. He started his journalism career at the Press Association before joining Euromoney’s graduate scheme in April 2010. Read More >>

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