Alphabet Trounces Profit Estimates

Google’s advertising machine keeps racing ahead even as regulators try to construct new guardrails to curtail the internet giant’s global dominance, reports The Wall Street Journal.

Alphabet Inc., Google’s parent, reported sales and profit surpassing analysts’ estimates on Monday, a sign the company’s strength in online ads will help offset the impact of sweeping new European regulations for online privacy and perceived abuses of its position in the market.

The results highlight how even while Silicon Valley’s leading tech firms are ensnared in a range of controversies, the underlying businesses are mightier than ever.

Shares of Google rose 3.9% to $1,267 in after-hours trading, reaching an all-time high.

Advertisers have shrugged off negative headlines surrounding Google and tech rival Facebook Inc., which for months has grappled with criticism about its data privacy practices. Facebook is expected to report a sharp increase in revenue when it reports second-quarter results Wednesday as companies continue to buy ads on the social-media site and its Instagram unit.

Wall Street Journal graphic

According to Reuters, Google’s dominance in online advertising has been challenged this year by the antitrust battle over its Android mobile software, which led to a $5 billion fine for the quarter, and other regulatory actions, including new European privacy rules.

Government pressure to improve moderation of user-created content has forced Google to hire more analysts. YouTube, a Google-owned streaming service, has increased spending on video content to keep consumers from shifting to offerings from Netflix Inc and expanding media conglomerates such as AT&T Inc.

But those issues have yet to halt Alphabet, which has grown quarterly revenue at least 20 percent year-over-year for two straight years.

“There was never a question about Google’s dominance of a buoyant digital ads market,” said analyst Richard Kramer of Arete Research.

The quarterly growth rate of what the company pays ad partners, called traffic acquisition costs, fell for the first time in three years, which Atlantic Equities analyst James Cordwell described as the “most impressive” piece of the results.

Operating margin rose to 24 percent from 22 percent last quarter, excluding the $5 billion antitrust fine issued last week by the European Commission over Google’s anticompetitive licensing of Android software. The margin was down from 26 percent a year ago.

Net profit dropped to $3.2 billion from $3.5 billion, due to the fine, but analysts focused on operating results.