© Reuters. FILE PHOTO: The brand logo of Alphabet Inc’s Google is seen outside its office in Beijing, China, August 8, 2018. Picture taken with a fisheye lens. REUTERS/Thomas Peter
By Paresh Dave and Nivedita Balu
(Reuters) – Google owner Alphabet (NASDAQ:GOOGL) Inc on Tuesday beat expectations for third-quarter revenue, a positive sign that its advertising business is overcoming new limits on tracking mobile users.
Through its search engine, YouTube video service and partnerships across the Web, Google sells more internet ads than any other company. Demand for its services surged in the past year as the pandemic forced people to spend more time online, and their new habits have persisted.
Google advertising revenue rose 41% to $53.1 billion during the third quarter. Alphabet’s overall sales jumped to $65.1 billion, above the average estimate of $63.336 billion among analysts tracked by Refinitiv.
Shares fell 0.69% to $2,767 following the after-hours release of the financial results.
Quarterly profit was $18.936 billion or $27.99 per share, beating expectations of $24.08 per share and marking a third-straight quarter of record profit. Alphabet’s profit is subject to wide fluctuations because accounting rules require the company to measure unrealized gains from its investments in startups as income.
Anxiety by consumers over how Google and other companies use their browsing behavior to profile them and then pick which ads to show has become widespread. In the latest challenge, Apple Inc (NASDAQ:AAPL), whose iPhones account for half of the smartphones in the United States, gave its users more control to stop tracking over the past few months. The change led advertisers to recalibrate their spending in ways that Google rivals Snap Inc (NYSE:SNAP) and Facebook Inc (NASDAQ:FB) said hurt their third-quarter sales.
Google may have been less affected because its search engine collects data on user interests that is valuable to advertisers and unmatched in the industry.
Alphabet’s total costs increased 26% to $44.1 billion in the third quarter and the company’s workforce size passed 150,000 employees.
Alphabet shares have outperformed those of many big peers since the end of last year, rising about 57%. Microsoft is up 39%, Facebook 20% and Amazon 2% over the same period. But shares of Alphabet trade at a slight discount to Facebook, the internet’s No. 2 seller of online ads. Facebook trades at 6.8 times expected revenue over the next 12 months compared with 6.4 times for Alphabet.
Facebook has been swamped with accusations in recent weeks from a former employee who leaked thousands of confidential company files to media and filed complaints with the U.S. securities regulator over alleged misrepresentations by the company about its risks from hosting inappropriate content.
Google has been caught up in some of the fallout. A YouTube policy official testified to U.S. Congress earlier on Tuesday alongside other companies about the harms of social media to young users.
Investors also await further changes to Google’s businesses as a result of scrutiny of the company’s market power. U.S. and other authorities have alleged some of the company’s practices in advertising and search are anticompetitive, though the company argues they are to benefit users. In one concession to critics last week, Google said it would cut some of the fees it collects from apps on its Play app store starting next year.
But the move could end up generating new revenue for Google if it leads companies such as music streamer Spotify Technology SA to start selling subscriptions through their apps and giving Google 10% to 15% of the sum.
Alphabet beats sales estimates, posts record profit again on Google ad surge