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Mobile and video pay off for Google’s parent company Alphabet

Alphabet ascribes strong second quarter financial results to long-term investments in mobile and video as demand for advertising through these channels increases

Google parent company Alphabet has joined Facebook in crediting mobile and video with strong financial results in the second quarter of 2016.

Alphabet reported profits of $4.9bn from revenues of $21.5bn for the third quarter since restructuring, sending Alphabet’s share price 6% higher in after-hours trading.

This means profits were up 16% and revenues were up 5% compared with the previous quarter, but up 24% and 21% respectively when compared with the same period a year ago.

“Our investment in mobile underlines everything that we do, from Search and YouTube to Android and advertising. Mobile is the engine that drives our present,” said Sundar Pichai, chief executive officer of Google.

“And now to our deep investments in machine learning and AI, we are building the engine that will drive our future,” he said in an earnings call with analysts.

Ruth Porat, chief financial officer of Alphabet, said the company’s revenue growth reflects the successful investments made over many years in rapidly expanding areas such as mobile and video.

“Once again, the primary driver was the increased use of mobile search by consumers, benefiting from our ongoing efforts to enhance the mobile search experience,” she said in an earnings call with analysts.

“We also benefited from solid growth in desktop and tablet search, as well as continued strength in YouTube and programmatic advertising.”

Analysts said the strong growth in Google’s advertising revenue of 19% compared with the same period a year ago to $19.14bn shows that, like Facebook, it is making a successful transition to mobile advertising.

Google also achieved a 29% year-over-year rise in paid clicks, where advertisers pay the company only if a user clicks on the ad. However, analysts said the 7% fall in the cost per click shows advertisers are unwilling to pay as much as they have in the past for Google advertising.

Read more about Alphabet

  • In the first quarterly results since switching to the Alphabet structure on 2 October 2015, the company reported a profit of $4.9bn on revenue of $21.3bn.
  • Alphabet is a parent company that includes a “slimmed down” Google alongside companies not related to core internet products.
  • Alphabet’s quarterly revenue was $15.1bn, above analysts’ average estimate of $15bn, while profit was $7.35 a share, beating predictions of $7.20.

“Other revenue” for Google was $2.2bn, up 33% year-over-year and up 5% sequentially. Year-over-year growth was driven by Google Cloud and Google Apps as well as Google Play, followed by hardware, according to Porat.

Pichai told analysts that Google has been integrating its cloud and apps products to create more unified systems for companies large and small.

“We have strong momentum with businesses such as Symphony, a secular communication and workflow platform, which recently announced that its cloud computing business is available on the Google Cloud Platform [GCP],” said Pichai. 

“We provide the high reliability and performance needed by Symphony‘s customers in the financial services industry,” he added.

In the past quarter, Pichai said Google had introduced Tensor Processing Units, or TPUs, which can deliver an “order of magnitude better optimised performance per watt” for machine learning projects.

“Google DeepMind’s AlphaGo was powered by TPUs, enabling it to process faster and look farther ahead between moves. We are now passing this benefit on to our enterprise customers to supercharge their machine learning applications,” he said.

Pichai also highlighted the recent introduction of two cloud machine learning APIs for speech and natural language, which will help enterprise customers convert audio to text and easily understand the structure and sentiment of the text in a variety of languages.

“We are building out our support at full scale as more Fortune 100 companies choose our cloud,” he said.

Revenue at Alphabet’s Other Bets division – which includes broadband business Google Fiber, home automation products Nest, self-driving cars and X, the research facility that works on “moon shot” ventures – rose 150% to $185m, but net losses increased to $859m from $660m for the same period a year ago.

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