Maintaining a rare growth for a company its size, American tech giant Alphabet Inc reported a whopping 21 percent jump in quarterly revenue on Monday. The report clearly suggests that the tech market is going to see a huge surge in the sales gains and the internet companies are just not yet done on making money.
According to the official statement by the company, the net income made was $3.5 billion on the sales of products and services worth of $26 billion. The profits were expected to be much higher had the company that owns both Google and YouTube not faced a record $2.7 billion antitrust fine slapped by the European Union. The company, however, states that the costs of products and services would remain high due the relatively higher costs of R&D as people have shifted to mobile devices. Another reason for the squeezed expected profits owes to the 3 percent fall in Alphabet’s share price which came down to $967 after the bell.
Alphabet’s cost of revenue on research and development has risen to 28 percent which is well above the growth in revenue itself. According to industry experts, the rising costs of driving traffic to its search engine is what is hurting Google the most. The problem is seen as a big hurdle in going ahead with Google’s future policies and endeavors. According to senior officials at Alphabet, the company’s primary focus always has been on getting bigger. The company for long has focused on revenue and operating income dollar growth and not on the operating margins.
Alphabet Inc states the high cost of services and products is a result of more money flowing into the high-growth products that create value for shareholders and users. Alphabet reported an eye popping $15.7 billion in cash and cash equivalents and $79 billion more in marketable securities. The reason for such huge numbers is that Alphabet and its social media rival Facebook Inc. together dominate the online advertising the market making billions of dollars every year. For the year 2017 alone, Google is expected to make $75 billion by online advertisement while rival Facebook is expected to fetch $37 billion. Facebook is due to report its quarterly earnings on Wednesday, while both the companies’ together account for almost 50% of the online advertisement market.
For many years now, Google has been shadowed by antitrust risks and the European Union imposing a 2.42 billion euro ($2.7 billion) fine on Google for favoring its own shopping service was no surprise. The fine came in as a result of three EU probes on Google’s dominance in searches and smartphone operating system. Thanks to the money power of Alphabet Inc, the fine itself is not seen as much of a problem. What is to be seen is the impact this has on Google’s Europe business in terms of market friendliness and faith amongst users. The US authorities have however decided to keep a more polite touch against antitrust policies of Google. Had Alphabet got away with the fine, the earnings per share would have been $8.90 in the second quarter as compared to $7 in the previous year. Even with the fine, Alphabet reportedly made earnings of $5.01per share much more than the estimated number of $4.49.
Sundar Pichai, Chief Executive Officer of Google, came out strongly in support of Google’s Android operating system and apps such as Google Maps, things which have been under the lens of EU antitrust officials for quite some time now. Google’s ad revenue has risen to 18.4 percent to $22.67 billion along with revenues from other products like Pixel smartphone, the Play Store and Google’s cloud business that saw a rise of 42.3 percent to $3.09 billion.