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Google revenues leap 22 per cent in first quarter despite YouTube ad strife

Google – which now prefers to call itself Alphabet – is on course to become a $100bn turnover company, this year or next, after it filed first quarter revenues of $24.75bn, up by 22 per cent compared to the $20.26bn it achieved in the same quarter last year.

And the revenue increases were not driven by sales of Pixel smartphones, cloud or any of the other technologies the company likes to show off, but of online advertising.

Together with Facebook, Google continues to slurp-up the lion’s share of online advertising spending globally, pulling in $21.4bn in the first quarter – more than 86 per cent of its total revenues.

The company’s quarterly net income similarly grew, up by 29 per cent from $4.2bn to $5.4bn. 

Alphabet chief financial officer Ruth Porat claimed that the fast-rising advertising revenues enabled Google to channel investment into other activities, especially cloud and hardware.

“Cloud is one of our most important strategic priorities given the scale of opportunity in a rapidly evolving sector and the fact that the requirements for success align with many of our strengths. We will continue to invest here for the long-term opportunity,” said Porat, on an analyst conference call last night.

However, the company’s ‘other bets’ weighed heavily. These initiatives, such as Next, Verily and Google Fiber, generated just $244m in revenues, but contributed $855m in losses. The company has yanked back spending in its capital intensive Google Fiber division in response following a “pause in expansion”, which was announced in the third quarter of 2016.

And while revenues at Google’s YouTube online video business continued to grow, trouble is brewing following attempts to better manage where ads are placed, causing a big drop-off in revenues for a number of high-profile YouTube ‘stars’. Many are talking of quitting. 

In terms of costs, one of Google’s biggest is stock-based compensation, which was up by 40 per cent, year-on-year, to $1.9bn. Capital expenditure weighed in at $2.4bn, “reflecting investments in production equipment, facilities, and data centre construction”, according to Porat.

She described the results as “excellent” and claimed that the company had “great momentum in our new businesses across Alphabet”. Stock market investors generally agreed, pushing up the share price after the results were inveiled. 

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