Alphabet Sees Ad Sales Grow, Offsetting Losses From Its 'Other Bets'

Alphabet, the world's No.2 publicly traded company by market capitalisation, just missed analysts' revenue targets, citing the strong US dollar.

Rosenblatt Securities analyst Martin Pyykkonen said the effect of foreign currency was worse for Alphabet than expected.

"If there had been a little better foreign currency translation, it would have been better than the Street consensus," he said.

The company said consolidated revenue rose to $20.26 billion (roughly Rs. 1,34,784 crores) from $17.26 billion (roughly Rs. 1,14,826 crores). That was slightly below the $20.37 billion (roughly Rs. 1,35,516 crores) analyst consensus, according to Thomson Reuters I/B/E/S. Earnings per share of $7.50, excluding one-time items, missed the analyst target of $7.97.

"As a result of the ongoing strength of the US dollar, we realized a negative currency impact on our revenues year-over-year of $762 million (roughly Rs. 5,069 crores), or $593 million (roughly Rs. 3,945 crores) after the benefit of our hedging program. Holding currency constant to prior periods, our total revenue grew 23%" year-over-year and declined 4% sequentially reflecting holiday seasonality," Alphabet Chief Financial Officer Ruth Porat said on a call after results were released.

Google's advertising revenue increased 16.2 percent to $18.02 billion (roughly Rs. 1,19,882 crores), while the number of ads, or paid clicks, rose 29 percent, the company said.

Payments to other websites, known as traffic acquisition costs, rose 13 percent from the previous year to $3.8 billion (roughly Rs. 25,280 crores), and they increased as a percentage of revenue within the Google Network of advertising, Porat said.

That reflects a higher percentage of advertising on mobile and programmatic advertising, an automated system of buying ads. Those are areas Google has targeted for growth and carry higher traffic acquisition costs, she said.

"On the advertising and marketing front, the landscape is changing, it's no longer a Google-centric world in mobile," said Andrew Frank, a senior analyst at Gartner.

Losses increased at the company's Other Bets business, which includes its broadband business Google Fiber, home automation products Nest, self-driving cars and X - the company's research facility that works on "moon shot" ventures.

The loss widened to $802 million (roughly Rs. 5,335 crores), up from $633 million (roughly Rs. 4,211 crores) a year earlier. Revenue rose to $166 million (roughly Rs. 1,104 crores) from $80 million (roughly Rs. 532 crores).

Alphabet's net income rose to $4.21 billion (roughly Rs. 28,008 crores), or $6.02 per Class A and B share and Class C capital stock, from $3.52 billion (roughly Rs. 23,417 crores), or $5.10 per share.

The company's shares fell to $732.94 in after hours trade from a close of $780.

© Thomson Reuters 2016