Alphabet's earnings look better than ever thanks to a new accounting rule

Gladys Abbott
April 24, 2018

Advertising revenue, which still accounts for 86% of the core Google business, jumped 24% year over year to $26.6 billion.

The figure represents a revenue increase of 26% year-over-year, versus 23% 12 months prior, with total advertising revenue numbering $26.6bn during the period, with a global breakdown revealing that North America revenues totaled $14.bn; $10.5bn in EMEA, and $4.8bn in APAC.

The first quarter profit included one-time gains of $3 billion on its equity investments, believed to have come mainly from a rise in the value of its stake in leading smartphone-summoned ride service Uber. Google's parent company reported operating income of $7 billion for the quarter, compared to $6.6 billion in the same quarter previous year.

Alphabet made some changes in its financial reporting this quarter, including removing Nest from its "Other Bets" revenues. Goldman Sachs analysts estimate the bill could cut Google's ad revenue by as much as 2%. Aggregate paid clicks were up 59 percent year over year and 8 percent sequentially. After stripping out one-time gains, Alphabet earned $9.93 per share - still enough to beat analysts' expectations of $9.33 per share.

Operating losses from Google's Other Bets, which include business segments such as its health tech-focused Verily and Google Fiber, decreased from $703 million in Q1 2017 to $571 million in Q1 2018.

Alphabet's revenue was up 24.0% on a year-over-year basis.

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Investors shrugged. In initial after-hours trading, shares were rising about 3 percent before dropping back after the report to about less than a 1 percent rise, which turned negative by a fraction after the earnings conference call ended at 2:30 p.m. PDT.

When RBC analyst Mark Mahaney asked him whether he thought the new rules would impact advertisers' targeting abilities, Pichai emphasized the fact that it still makes most of its money from search advertising, where the effect of personalization is minimal. Zacks Investment Research upgraded Alphabet from a "hold" rating to a "buy" rating and set a $1,199.00 price target for the company in a research report on Tuesday, December 26th.

Experts say the increased spending reflects a more sceptical mood in Washington, as well as the sprawling business endeavours that has brought Google and its products into so many facets of modern life. Google has been adjusting to the new law for about 18 months already.

Alphabet (NASDAQ:GOOGL) last released its quarterly earnings data on Monday, April 23rd.

Europe's General Data Protection Regulation kicks in next month and changes how internet companies collect user data and targets ads.

But with total impressions flat year-over-year and up only slightly from Q4's total, one can't help wonder how close we are to "peak mobile web", akin to "peak auto" we saw in the automobile industry just a couple of years ago.

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