Alphabet Returns to Revenue Growth in Q3 As Companies Resume Ad Spending

Reuters  |

Image source: Alphabet earnings press release, Oct. 29, 2020

By Paresh Dave, Munsif Vengattil

OAKLAND, Calif./BENGALURU (Reuters) - Google parent Alphabet Inc returned to sales growth in the third quarter as businesses initially hobbled by the coronavirus pandemic resumed advertising with the internet's biggest supplier of ads, the tech giant said on Thursday.

Wall Street had expected a rebound from Alphabet because the company said in July that advertiser spending was inching back following a March plummet due to lockdowns. Google competitors Snap Inc and Microsoft Corp also reported third quarter revenue ahead of expectations in recent days.

Google’s namesake search engine and YouTube video service are gateways to the internet for billions of people and have become more essential as they transact and entertain online to avoid the virus. Advertisers have turned to Google’s ad system to let shoppers know about deals and adjusted service offerings as the economy chugs along again.

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In recent months, Google has stopped charging merchants for some promotional space and issued grants to help other businesses buy ads. The efforts followed the company’s first sales decline compared with a year-earlier period in the second quarter, since going public in 2004.

But the dominance of Google services has become a liability for the company too. The U.S. government last week sued the company for allegedly abusing a search monopoly and stifling competition. Other regulators in the United States and elsewhere have similar ongoing investigations.

The various cases could lead to Google having to divest some of its ad business in the coming years, though financial analysts doubt it will happen.

Google’s ad business accounted for 80% of Alphabet’s $46.2 billion in revenue in the third quarter. Analysts had expected $42.9 billion in revenue, or 5.9% growth from a year ago.

Alphabet’s profit was $11.2 billion, or $16.40 per share, compared with the average estimate of $7.698 billion, or $11.18 per share, among analysts tracked by Refinitiv.

Google competitors Facebook, Amazon.com Inc and Twitter Inc also released financial results on Thursday that were above expectations, showing how internet companies have fared well through the pandemic. Facebook shares on Thursday were up 30% this year, Amazon 71% and Twitter 51%.

Alphabet’s total costs and expenses rose 12% from a year ago to $35 billion in the third quarter, compared with a 7% jump a quarter ago.

Capital expenditures dropped 20% to $5.4 billion, compared with a 12% drop last quarter.

Reporting by Paresh Dave and Munsif Vengattil; Editing by Maju Samuel and Tom Brown,

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Source: Reuters

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