Alphabet is most valuable firm in US

According to Forrester analyst Frank Gillett, Alphabet has "a big advertising business and a venture capital business", referring to Google, the dominant player in Internet search, and ventures into big-vision new projects such as self-driving cars,
According to Forrester analyst Frank Gillett, Alphabet has "a big advertising business and a venture capital business", referring to Google, the dominant player in Internet search, and ventures into big-vision new projects such as self-driving cars, smart "Google Glass" spectacles, drones and Google TV.PHOTO: REUTERS

Google's parent surpasses Wall Street's quarterly forecasts on the back of strong mobile ad sales

SAN FRANCISCO • Google's parent Alphabet Inc easily beat Wall Street's quarterly profit forecasts on Monday, helped by strong mobile advertising sales, sending the firm's shares higher in after-hours trading to surpass Apple as the most valuable company in America.

For the first time, the company disclosed the profitability of Google's search engine and its other online services, and how much it is spending on ambitious technology projects such as self-driving cars.

The numbers were lapped up by investors, who saw room for growth in Google's traditional business, and were relieved to see that spending on new projects it calls "Other Bets" was not as lavish as some had feared.

"It's pretty interesting that 80 per cent of YouTube views come from outside of the United States. I didn't think it would be that high," said Mr Kevin Kelly, managing partner at Recon Capital. "It demonstrates that the value of YouTube can continue to be extracted," he said.

The operating profit margin for its Google unit was 31.9 per cent in the most recent quarter, compared with 25 per cent for Alphabet.

Alphabet spent US$869 million (S$1.24 billion) on capital expenditures for the Other Bets last year, up from US$501 million in 2014. It has not made any projections about if or when those bets cumulatively would become profitable.

"As long as the core business continues to operate well with accelerated revenue... investment in those businesses can continue," said Mr Ronald Josey of JMP Securities.

Alphabet's reported quarterly profit rose five per cent to US$4.92 billion on the back of strong online advertising revenue, particularly from searches done by holiday season shoppers using smartphones or tablets.

"This holiday season, we found that shopping moments replaced shopping marathons," Google chief executive Sundar Pichai said during an earnings call.

People made purchases online when time allowed, with Google powering many of their searches and serving up related ads.

Google's ad revenue climbed globally, gaining on both mobile devices and desktop computers, according to Alphabet chief financial officer Ruth Porat.

The California-based firm said its revenue topped US$21.3 billion in the final three months of last year. Alphabet's overall revenue for last year stood at US$74.5 billion, up from US$65.7 billion in 2014.

Prime revenue drivers in the fourth quarter were mobile search ads and ads on YouTube, where people watch "hundreds of millions" of hours of video daily.

Ms Porat said the strong revenue growth was a return on years of investment in mobile search, YouTube and so-called programmatic advertising, which involves ads being sold automatically using software.

Forrester analyst Frank Gillett said of the new earnings presentation: "Essentially, what they have now is a big advertising business and a venture capital business."

While Google is best known as the dominant player in Internet search, it has launched a variety of trailblazing projects in recent years that are marginally related at best to its core operation.

Alphabet subsidiaries include Google, Nest Labs, and Google X labs devoted to big-vision new technologies such as self-driving cars, along with such projects as smart "Google Glass" spectacles, drones and Google TV.

Industry tracker eMarketer expects Google to remain the dominant player in worldwide search advertising, raking in US$45.58 billion in revenue this year, just shy of 57 per cent of the overall spend.

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on February 03, 2016, with the headline 'Alphabet is most valuable firm in US'. Print Edition | Subscribe