Sales kept soaring at Google parent Alphabet Inc., which also got an earnings boost from Uber Technologies Inc.
Alphabet’s net profit surged 73% to $9.4 billion in the first quarter, up from $5.4 billion in the same period last year, boosted by a change in accounting rules that caused the company to begin reporting the current fair value of nonmarketable securities. That included the company’s valuable stake in ride-hailing giant Uber, though it didn’t break out individual holdings.
The earnings boost helped offset the rising costs Alphabet pays partners such as Apple Inc. to direct more smartphone users to Google’s search engine. These costs have raised concerns that the company has to give up chunks of its revenue to maintain its level of growth.
“The advertising business that is not based on their home page search activity is growing faster, which helps their top line, but is lower margin,” said
an analyst at Pivotal Research.
Traffic costs reached $6.3 billion, up 35% from a year earlier and have made up one-fifth of the company’s revenue for five consecutive quarters. On a call with analysts in February, finance chief
blamed the rise in these costs on mobile search and so-called programmatic ads, where Google places ads on partners’ content—which carry higher fees. She said some of these costs would ease after the first quarter.
The company’s revenue, excluding payments to advertising partners, jumped 24% to $24.9 billion and surpassed estimates. Its shares were little changed in after-hours trading.
Google has maintained its huge lead in the global market for online ads despite its massive size and competition from fast-growing challengers. Google is expected to control 31% of the global ad market this year, down slightly from 31.7%, according to estimates from eMarketer.
The search giant’s strong results landed as regulators in Washington are considering getting tougher on internet privacy. Europe is also moving forward with a sweeping set of rules called the General Data Protection Regulation, which goes into effect May 25. The new law could affect the revenue of Alphabet, which has already announced some changes to the way it collects consent from visitors of sites displaying its ads.
Companies found in violation of the sweeping regulation will face fines of up to 4% of their annual global revenue.
Asked about the impact of the European regulations on a call with analysts Monday, Chief Executive
said Google has spent more than a year preparing to be compliant. Because Google derives most of its revenue from search ads, which rely less on personal targeting, much of its business won’t be affected by the changes, he said.
The fair value of Uber shares has long been something of a mystery. Last December, Uber backers and employee sold shares to a group of investors led by
SoftBank Group Corp.
at a $48 billion valuation—a roughly 30% discount to the last time it sold new shares to investors, at a $68 billion valuation.
Alphabet attributed about $3 billion of its net profit increase to the value of nonmarketable securities, which includes the Uber stake. The company didn’t disclose any details about the size of its Uber holdings or what portion of that basket of securities is made up by Uber.
Write to Douglas MacMillan at email@example.com