Alphabet/$GOOG reported strong earnings per share for its third quarter handily beating Wall Street estimates as revenues per click fell faster than expected and traffic costs rose substantially.
Natalie Gagliordi reports:
The tech giant reported a net income of $6.73 billion, with non-GAAP earnings were $9.57 per share on revenue of $27.8 billion, when including traffic acquisition costs (TAC). On average, Wall Street was looking for Q3 earnings of $8.83 per share with $27.2 billion in revenue.
Foremski’s Take: $GOOG shares jumped more than $41 or 4% in after hours trading as investors welcomed the unexpected bonus of $1.23 earnings per share.
This ignores an ongoing trend that should cause concern for investors: Google continues to make less revenue per click but somehow finds ways of showing ever more numbers of advertisements.
Every quarter Google has to find more ways to get more ads in front of people because each ad makes less money. Its traffic acquisition costs rose substantially this quarter. How is this a sustainable business model?
As Google’s ads fall in value it needs to find new places to show more ads. Yet the huge shift in Google users to mobile screens severely limits how much more advertising can be shown.
How long can Google keep finding more clicks to make up for less effective advertising?
$GOOG needs to fix this time bomb in its core business because none of its other businesses such as cloud computing services are anywhere near being profitable enough – or scalable enough – to diversify away from a rapidly narrowing future: running out of places to place ever less effective ads.
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