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Google on Oct. 22 announced better than expected financial results for its third quarter ended Sept. 30, 2015, citing substantial growth in mobile search revenue and strong contribution from its programmatic advertising programs and YouTube.
Alphabet, Google’s holding company, announced consolidated revenue of $18.68 billion for the third quarter of 2015, up 13 percent from the $16.52 billion in revenue that Google reported in the same period last year. Net income in the quarter rose to $3.98 billion from the $2.74 billion the company announced last year.
Both revenue and earnings per share of $7.35 were higher than Wall Street expectations of $18.53 billion and $7.21, respectively, sending Google’s stock soaring by more than 10 percent in after-market trading.
Google also announced plans to repurchase about $5 billion worth of its Class C stock starting in the fourth quarter of this year.
This is Google’s first earnings report since it reorganized its operational structure earlier this year in a bid to separate its core Internet search and ad business from the myriad other ventures the company has entered over the last few years.
Under the restructuring, Google’s core businesses such as Search, Maps, Android, YouTube and Google Maps have been carved out into a separate entity headed by newly appointed CEO Sundar Pichai.
All of the company’s other efforts including Google’s autonomous car venture, its Calico biotech effort, Google Fiber and its moonshot projects have been carved up into separate businesses collectively referred to as Other Bets. Google and the Other Bets ventures are now all subsidiaries of Alphabet, the newly created parent company headed by Google co-founders Larry Page and Sergey Brin.
Google’s latest results reflect the consolidated revenues from all of its businesses. Going forward though, Google will report its own results separately from the Other Bets.
As with previous quarters, advertising revenue from Google’s search business contributed a lion’s share of the company revenue, accounting for nearly $16.8 billion of the $18.68 billion overall. The aggregate number of paid clicks on Google’s Websites grew 35 percent year over year, though aggregate costs per click, which is the money that Google actually earns per click, was down 11 percent.
“While the cost per click-through declined, the total number of paid clicks rose,” said Charles King, analyst with Pund-IT. “In other words, even as Google’s traditional online ad business is being shaken by cheaper mobile ads, the company appears to be making up the difference in paid click volume.”
Although Alphabet’s emerging businesses and services added only modestly to the overall bottom line, there’s reason for optimism there as well, King said. “Google’s ability to enjoy relatively steady benefits from its ad business has provided a great deal of latitude in getting new businesses up and running. I expect that situation to continue so long as the company enjoys the support and favor of its shareholders.”
In the earnings release, Google and Alphabet CFO Ruth Porat highlighted mobile’s contributions to the company’s search revenues in the third quarter. “Our Q3 results show the strength of Google’s business, particularly in mobile search,” Porat said. “With six products now having more than 1 billion users globally, we’re excited about the opportunities ahead of Google, and across Alphabet,” she said, referring to Google Search, Maps, Chrome, Android, Chrome and Google Play.
Jack Narcotta, an analyst with Technology Business Research, lauded Google’s results.
“The company is firing on all cylinders in programmatic advertising, and appears to be better managing search’s transition to mobile from PCs,” he said in emailed comments to eWEEK.
The increased user engagement from the six properties that have more than 1 billion users has helped drive revenues and offset the negative impact of exchange rate fluctuations, Narcotta said.
Google is also being very strategic in the manner in which it has turned its focus increasingly on mobile-oriented advertising and content platforms. Restoring growth to its legacy desktop segments is less of a concern for Google given the healthy growth of more strategic segments such as DoubleClick, he added.
Narcotta noted that Google’s gross margins were down compared with the same period last year. But a lot of that decline can be attributed to Google’s increased investments in data centers and increased traffic acquisition costs. To a lesser degree, some of the pricing pressures on mobile ads have likely been brought on by competition with Facebook, Narcotta said.