Google Parent Alphabet’s Ad Sales Hit Record, but Costs Pile Up

Google Parent Alphabet’s Ad Sales Hit Record, but Costs Pile Up

Quarterly results from Google showed the complexity of operating its internet empire, as steady growth in online advertising sales was overshadowed by rising costs and a weak performance from some long-held company investments.

The mixed outcome for the third quarter adds to a tricky dance Google must execute as it faces regulatory scrutiny.

Analysts and investors are encouraging the company to plow ahead on new advertising opportunities in units like video platform YouTube and the ubiquitous Google Maps app. Yet such efforts to create new profits across the conglomerate come as the Trump administration and 50 attorneys general undertake wide probes into Google, including whether it has an unfair advantage over smaller advertising rivals.

The Justice Department’s antitrust chief, Makan Delrahim, said last week that a breakup of Silicon Valley’s technology giants is “perfectly on the table” as part of evaluations opened over the summer of whether companies abuse their market power.

“We consistently want to work and build products that benefit users,” Google Chief Executive

Sundar Pichai

said a conference call on Monday, when asked by analysts about looming antitrust probes. He said the company’s products “overall help reduce prices and expand choice.”

Google’s parent,

AlphabetInc.,

reported third-quarter revenue of $40.5 billion, a rise of 20% from the same period last year. While that would be enviable growth for many companies, the clip is below Google’s pace historically.

Advertising revenue rose to a record $33.9 billion, contributing to an overall profit of $7.1 billion. That profit was lower than Wall Street’s expectations and down 23% from a year earlier, when the result was boosted by changes to the U.S. tax code. The company’s margin for the latest period was also crimped as costs rose, a long-term concern for investors.

Google said the latest quarter was another busy time for adding “Nooglers,” or New Googlers. It hired 6,450 full-timers, swelling that head count to 114,096.

Alphabet’s stock fell 2% after hours, wiping out gains from Monday’s regular session, when it rose to $1,290. Shares have gained roughly 25% this year, in line with the broader technology market.

Advertising is central to the Google narrative. The company is increasingly a player in local advertising for small businesses, and executives said they expected to continue to increase their take from that segment of the market.

Google provides comparatively scant disclosures on other areas of its business. Alphabet has resisted requests from analysts to detail the performance of YouTube, for instance, and combines results from nascent units like the Waymo self-driving car division in a line item that it calls simply “Other Bets.”

Another mystery is Alphabet’s equity investments in other companies. Those hit the conglomerate’s bottom line in a big way this past quarter, as Alphabet reported paper losses of $1.53 billion from such investments, compared with gains of $1.38 billion a year earlier.

Google’s venture-capital arms have invested in startups like Uber Technologies Inc., whose stock is trading lower than its initial public offering price. But Google didn’t say exactly where the investment losses came from in the third quarter.

On the earnings call, Google executives stuck mostly to generalities when asked to remark on the various arms of the conglomerate.

An analyst asked about subscription figures for YouTube’s struggling premium products. Mr. Pichai’s answer: “We are definitely scaling that up, and we are seeing great traction.”

Google is trying to get a foothold in cloud computing, a market dominated by Amazon.com Inc. and Microsoft Corp. In that effort, Mr. Pichai said, “We saw customer momentum across multiple areas.”

Potential customers and competitors have said Google Cloud is trying to aggressively undercut competitors on price. But Morgan Stanley researchers recently warned of “disappointing” data for Google Cloud, based on their survey of corporate information technology executives. Only 2% of respondents said in the survey they expected Google Cloud to gain a share of their IT budgets anytime soon, down from 7% just a quarter ago.

Write toRob Copeland at[email protected]

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