Alphabet’s Revenue from Mobile Ads Soars

On Thursday, Alphabet Inc. reported advertising sales that were stronger than was expected as well as higher operating margins, helping to boost its stock as investors brushed concerns off about higher costs for acquiring mobile users.

Stock was higher by almost 3% in afterhours trading, and since the start of 2017 has increased by 25%.

Revenue for the third quarter for Alphabet, which is Google’s parent company, jumped by 24%, to end the quarter at $27.8 billion, above the estimates of analysts that were $27.2 billion. Profit was $6.7 billion equal to $9.57 a share which was far ahead of estimates on Wall Street.

Alphabet, as well as most of the tech sector, enjoyed strong growth over the past few years, as advertising moves from the traditional media to internet as consumers move in droves to the constantly growing use of digital devices.

While Google continues to face political pressure, much of which is in Europe, over its increased dominance and the role it has in spreading online propaganda, but those problems to date have not reached the bottom line.

Google CEO Sundar Pichai told Wall Street analysts that its efforts to attract both small and large advertisers, across the globe were not paying off, in particular in Asia, where sales were up over 29% to end the quarter at $4.2 billion.

Alphabet’s third quarter was its 15th straight that had double-digit, year to year increases in consolidated sales. The pace shows no signs of slowing, with the rate of growth reaching the highest point in close to five years.

At Google, the main operating unit for Alphabet, ad sales represent the overwhelming majority of the revenue for the company. The advertising business is facing growing competition from Facebook, but has continued growing as more of its users turn to YouTube and its mobile search services.

Shares of Alphabet trade at close to 25.7 times its expected earnings, while those of Facebook are at 26.4 times, showed data from an online financial research firm.

Investors have increasingly become more concerned about the steep increase in costs in placing ads in front of their users, as Google pays Apple and other businesses to integrate its search engine into their mobile products.

Those payments are part of its TAC or traffic acquisition costs and increased by 54% for the quarter, representing 12% of its ad sales.

Pichai has defended the different partnerships calling its deals a win-win situation due to Google being able to perform better when its partners do.

Some analysts feel that the growth in revenue and cost controls made increases in TAC a non-issue.

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