Alphabet sales growth revived as advertisers flock back to Google

Paresh Dave and Munsif Vengattil
·3-min read
FILE PHOTO: A Google sign is pictured on a Google building
FILE PHOTO: A Google sign is pictured on a Google building

By Paresh Dave and Munsif Vengattil

OAKLAND, Calif./BENGALURU (Reuters) - Google parent Alphabet Inc <GOOGL.O> on Thursday powered back to sales growth, beating analysts' estimates for the third quarter as businesses initially hobbled by the coronavirus pandemic resumed advertising with the internet's biggest supplier of ads.

Alphabet shares, up 13% on the year, rose 8.5% after hours to $1,689.89.

Google's billions of users are spending more time online transacting and entertaining themselves this year as they try to avoid the virus.

But many advertisers ceased spending in the second quarter as travel and leisure activity disappeared. As the global economy in the third quarter began to chug along again, advertisers flocked to Google to let shoppers know about deals and adjusted service offerings. Google also gained from political ad spending ahead of the U.S. presidential election on Nov. 3, advertising analysts said.

Ad sales surged across all regions and industries, Alphabet Chief Financial Officer Ruth Porat said. For instance, U.S. revenue grew 15% in the third quarter compared with 1% in the second quarter.

Porat declined to say whether the trend was sustainable in the fourth quarter, with Europe and other areas once again locking down because of significant increases in infections.

"While we’re pleased with our performance in the third quarter, there is obviously uncertainty in the external environment," Porat said.

Google rival Facebook Inc <FB.O> warned on Thursday that the recent bump in online shopping, which has been good for online ad sellers, may not carry through next year.

Google's cloud business was about flat with the second quarter, as were the company’s sales of apps, hardware and content subscriptions.

Alphabet said it would elevate cloud into a separate reporting unit starting in the fourth quarter, effectively dropping cloud financial results from its Google unit and giving investors their first view into the business' profitability.

Porat told financial analysts the company would not slow down spending on the cloud unit, even though another round of COVID-19 lockdowns may hit ad demand.

"We are investing aggressively in cloud, given the opportunity that we see and frankly the fact that we were later relative to peers," she said.

AD REBOUND

Alphabet's bounce-back followed its first sales decline compared with a year-earlier period in the second quarter, since going public in 2004.

Third quarter sales were $46.2 billion, up 15% from a year ago, compared with the average estimate of $42.9 billion, or 5.9% growth, among analysts tracked by Refinitiv.

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. Earnings benefited from cutbacks in marketing and travel and in particular a 20% drop in spending on equipment and workspace construction.

Google ad sales accounted for 80% of Alphabet's revenue, with bumps across each of the ads businesses where Google technology dominates the online landscape, including search, YouTube and the broader web.

The ubiquity and popularity of Google services has become a liability for the company. The U.S. government last week sued the company for operating a search monopoly and stifling competition. Other regulators in the United States and elsewhere have raised concerns about user privacy and censorship.

The various cases could lead to Google having to make costly changes to its bureaucracy and technology. But Alphabet Chief Executive Sundar Pichai said Thursday that resolving the complaints would create "certainty, clarity and opportunities."

U.S President Donald Trump referenced his administration's lawsuit in a campaign video released on Wednesday, saying "Big Tech has to be spoken to and probably in some form has to be stopped because they're taking away your rights."

Facebook, Amazon.com Inc <AMZN.O> and Twitter Inc <TWTR.N> 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%.

(Reporting by Paresh Dave and Munsif Vengattil; Additional reporting by Diane Bartz in Washington; Editing by Maju Samuel and Tom Brown)