In spite of anxiety in the market that the advertisers’ boycott of YouTube, due to ads that appeared alongside extremist videos, would take a bite out of its growth numbers, Alphabet (GOOG, Financial)(GOOGL, Financial), Google’s parent company, reported stellar first-quarter earnings numbers that beat Wall Street estimates both on the top line as well as the bottom line. Alphabet laid all concerns to rest, posting 22% growth during the first quarter compared to the prior period.
Alphabet reported revenues of $24.75 billion against the expectation of $24.22 billion and earnings per share of $7.73 against the expected $7.39.
Other bets continued to have a marginal impact on the overall sales numbers, reporting $244 million in revenues during the quarter as advertising revenues touched $21.411 billion compared to $18.020 billion last year, growth of 18.8%. The parallel growth of Facebook’s (FB, Financial) advertising revenues seems to have had no impact on Google as the search giant continues to keep raising its position in the global digital advertising industry.
Google's other revenues, the segment that is home to Google Cloud, Google Apps, Google Play and hardware, reported $3.095 billion in revenues compared to $2.072 billion last year – massive growth of 49.37%. During the first quarter of 2016, Google's other revenues grew 24%, from $1.670 billion in 2015 to $2.072 billion.
Alphabet has literally doubled its growth in a span of four quarters. Though Alphabet won't admit it or confirm it, it’s easy to see why this segment is experiencing such strong growth numbers. Google’s cloud efforts are slowly starting to pay off, and the extra hundreds of millions of dollars this segment is bringing in will provide massive support to Alphabet’s overall revenue numbers.
The trend of more clicks for lower cost continued during this quarter as well as aggregate cost per click declined by 19% during the quarter. But paid clicks surged by 44% during the quarter, which was more than enough to cover for the lower price, thus allowing Alphabet to post double-digit advertising revenue growth. This trend should continue for some more time because most of the growth Google is experiencing is coming from developing countries.
On a dollar basis, every user in these countries is going to contribute far less than their counterparts in developed countries. But what they lack in dollars, they make up for with sheer numbers. India is a perfect example. The cost per click that Google charges an advertiser would be much lower than it charges a similar advertiser targeting U.S. audiences, but India will bring it more clicks, compensating for the lower price point.
Overall, Alphabet’s quarterly results were strong, and if cloud keeps growing at a fast pace it will add a few more legs to Alphabet’s growth in the near term.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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