Wed, Feb 03, 2016 page15

• Profit surge lifts Alphabet past Apple

  AFTER HOURS: The shares of Google’s parent firm soared after it posted better-than-expected results, raising its value to US$549 billion, outpacing Apple’s US$534 billion

  • Reuters
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  Alphabet Inc on Monday easily beat analysts’ profit forecasts, helped by strong mobile advertising sales, sending the shares of Google’s parent higher in after-hours trading to surpass Apple Inc as the most valuable US company.

  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.

  

  Electronic screens post prices of Alphabet stock on Monday at the NASDAQ MarketSite in New York.

  Photo: AP

  “It’s pretty interesting that 80 percent of YouTube views come from outside of the United States. I didn’t think it would be that high,” Recon Capital managing partner Kevin Kelly said.

  “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 percent in the most recent quarter, compared with 25 percent for Alphabet.

  Alphabet spent US$869 million 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,” Ronald Josey of JMP Securities said.

  The company said consolidated revenue jumped 17.8 percent to US$21.33 billion in the fourth quarter, from US$18.1 billion a year earlier. Analysts had expected US$20.77 billion, according to Thomson Reuters I/B/E/S.

  Revenue for Other Bets was US$151 million, up 29.8 percent from US$106 million in the same quarter last year, primarily from its smart-home monitoring unit Nest, Google Fiber, which provides high-speed Internet access, and its life sciences business Verily.

  Adjusted earnings of US$8.67 per share handily beat analysts’ average estimate of US$8.10 per share.

  In a call with analysts, chief financial officer Ruth Porat attributed the strong earnings to “increased use of mobile search by consumers,” as well as “ongoing momentum” in YouTube and programmatic advertising, referring to the automatic buying of ads.

  Kelly said he would not be surprised if YouTube saw a surge in advertising revenues beyond the 17 percent increase it saw during last year.

  Total operating losses on the Other Bets — including glucose-monitoring contact lenses and Internet balloons — increased to US$3.57 billion last year, and US$1.2 billion in the fourth quarter.

  The Google unit houses its Internet and related businesses such as search, ads, maps, YouTube and Android, as well as hardware products such as its low-cost Chromebook laptops.

  Google chief executive Sundar Pichai said on the call that its Gmail service crossed 1 billion monthly active users last quarter, joining Search, Android, Maps, Chrome, YouTube and Google Play in topping that mark.

  He also touted the company’s performance during the holiday shopping season, saying that programmatic video impressions doubled this season compared with last, and that 60 percent of them came from mobile devices.

  However, Porat, without providing figures, said the company planned to accelerate capital expenditures this year.

  Google’s shares rose almost 5 percent in after-hours trading. Alphabet’s combined share classes were worth US$549 billion, compared with Apple, which had a value of about US$534 billion.

  Alphabet would officially overtake Apple in market value if both companies’ shares opened around current levels yesterday.

  Google’s advertising revenue increased nearly 17 percent to US$19.08 billion, while the number of ads, or paid clicks, rose 31 percent, the company said. Analysts had expected paid clicks to increase 21.8 percent.

  Advertisers pay Google only if someone clicks on their ad.

  Net income in the fourth quarter rose to US$4.92 billion, or US$7.06 per Class A and B share and Class C capital stock, from US$4.68 billion, or US$6.79 per share.

  Adjusted earnings of US$8.67 per share excluded certain one-time items.
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