Google's parent Alphabet’s Q1 profit fails to impress at $4.21 billion

23 Apr 2016


Google's parent Alphabet Inc reported a consolidated net income of $4.21 billion, or $6.02 per share, up from $3.52 billion, or $5.10 per share during the year-ago quarter.

Consolidated revenue for the January-March 2016 quarter stood at $20.26 billion, up from $17.26 billion in the year-ago quarter, excluding one-time items.

Google said the targets for first-quarter profit and revenue were hit by a strong dollar and the money spent to build traffic for its mobile advertising services.

The results drove Alphabet's shares down 6 per cent in late trading on Thursday after the web search company also missed Wall Street targets for first-quarter profit and revenue.

Chief financial officer Ruth Porat said on a conference call with investors that Alphabet's traffic acquisition costs (TAC), or payments it makes to other web sites, totaled $3.8 billion and accounted for 21 per cent of advertising revenues.

The percentage of ad revenues spent on TAC grew 13 per cent year-over-year, it said.

The rise in traffic acquisition costs reflected the dynamics of an ongoing shift to mobile advertising and the growing importance of programmatic advertising, in which ads are bought, sold and displayed by automated systems, say analysts.

Porat said spending on traffic acquisition is expected to keep rising as the shift to mobile continues - pressuring the company's traditionally robust margins on its advertising business.

Google's advertising revenue increased 16.2 per cent to $18.02 billion, while the number of ads, or paid clicks, rose 29 per cent, the company said.

Alphabet reported an increase in losses at its Other Bets business to $802 million, up from $633 million a year earlier even as revenue from these business more than doubled to $166 million from $80 million.

The Other Bets business include broadband business Google Fiber, home automation product Nest, self-driving cars and X - the research division that works on "moon shot" ventures.

Porat said foreign exchange rates factored heavily into the results, shaving $762 million from its revenue for the quarter or $593 million after the effects of a currency hedging programme.

"Our total revenue grew 23 per cent year-over-year and declined 4 per cent sequentially, reflecting holiday seasonality," she said on the conference call.

Alphabet's total net income rose to $4.21 billion, or $6.02 per Class A and B share and Class C capital stock, from $3.52 billion, or $5.10 per share.

The company's shares fell to $732.94 in afterhours trade from a close of $780.

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