Google’s parent company, Alphabet, beat expectations for last quarter earnings and reassured investors of its continuing relevancy. Alphabet’s shares increased $8.42, higher than expectations of $8.04. Alphabet’s total revenue of $21.5 billion exceeded forecasts of $20.76 billion. This quarter’s reports were especially comforting to investors who had watched earnings fall short of expectations eight out of the last 12 quarters.
Google Leverages Mobile Advertising
A surge in mobile advertising is at least partially responsible for Alphabet’s high earnings this quarter. As more consumers use smartphones, Internet use has soared. Alphabet leveraged the popularity of smartphones through its Android software as well as its contract with Apple to make Google the default search engine on its iPhones. Google’s machine learning technology and data mining capabilities offer user’s highly targeted ads, which in turn increases click-through rate. Advertisers have taken notice.
Google Leads Video with YouTube
Advertiser have also taken notice of YouTube’s success. When Google purchased YouTube in 2006 for a record-breaking $1.65 billion dollars, critics pointed to the site’s unprofitability and copyright infringement issues and wondered if the purchase was a mistake. Today, the tech giant claims to reach more people ages 18 to 49 than any other television resource including cable. While Alphabet hasn’t offered up any metrics to support that claim, a study by AYTM Market Research in 2013 found that YouTube’s popularity far-exceeded the 2nd most popular video site—and Google’s primary rival—Facebook.
Google Strategy Pays Off
The combined popularity of smartphones and YouTube helped drive $19.4 billion in advertising revenue, an increase of 19 percent over last year. Paid clicks on its search engine results page were up 29 percent since last year, while paid clicks on websites increased 37 percent.
Google’s CFO Deserves Credit
Analysts also laud Ruth Porat, the CFO appointed last year, for reigning in Alphabet’s operating costs. Shortly after she was appointed, Porat oversaw Google’s transition to Alphabet and in doing so brought a level of fiscal transparency rarely seen in tech firms. The move was favorably received by investors and increased Alphabet’s share by 7 percent overnight. In a natural outgrowth of transparency, Porat also implemented strict cost-cutting measures.
Fiscal austerity doesn’t seem dampen Alphabet’s enthusiasm for innovation. It’s “moonshot” endeavors include developing fully autonomous cars, delivery drones and artificial intelligence. Despite these costly development projects, investors seem to be soothed by the clarity on Alphabet’s balance sheet.
While shareholders will continue to analyze the causes of these higher-than-expected earnings, they can’t help but breathe a sigh of relief. Google stock had slid 1.6 percent for most of 2016, causing some to wonder if the beginning of the end had come.
For now, it appears the emergence of smartphones and strategic positioning will fortify Alphabet at least until the next big thing comes along. With its 31 percent share of a burgeoning $187 billion digital advertising market far exceeding Facebook’s 12 percent, it also appears Google has fortified itself against naysayers.