Alphabet's income surges on rising services revenue

Net profit at Google's parent company jumps to $18.9bn in third quarter

Google's third-quarter sales surged 41 per cent annually to $65.1 billion. Photo: AFP

Alphabet, the world's largest provider of search and video ads, reported a 68.4 per cent jump in third-quarter net profit on an annual basis, underpinned by a strong performance of Google Services business.

That includes advertisements, Android, Chrome, hardware, Maps, Search, Google Play and YouTube.

Net profit at Google's parent company jumped to $18.9 billion in the three months to the end of September, almost $7.7bn more than the same period last year. It was nearly 2.2 per cent up on a quarterly basis.

Revenue during the period rose 41 per cent to $65.1bn, exceeding analysts’ estimates for $63.3bn.

“Five years ago, I laid out our vision to become an AI-first company,” Alphabet chief executive Sundar Pichai said. "This quarter’s results show how our investments there are enabling us to build more helpful products for people and our partners. Ongoing improvements to Search and the new Pixel 6 are great examples.

"As the digital transformation and shift to hybrid work continue, our cloud services are helping organisations to collaborate and stay secure."

Last week, the company launched two smartphones, the Pixel 6 and Pixel 6 Pro, to take a piece of the market from Samsung and Apple.

Google chief executive Sundar Pichai says cloud services are helping organisations to collaborate and stay secure. AFP

Google’s advertising revenue from Search, YouTube and other businesses increased 43.2 per cent yearly to $53.1bn in the third quarter.

Google Services constituted nearly 92 per cent of the company’s total sales. It added $59.9bn to the overall revenue, almost 41 per cent more than the third quarter of 2020.

The total revenue from the cloud business grew an annual 44.8 per cent to more than $4.9bn, while revenue from other bets, or subsidiaries, increased more than 2 per cent yearly to $182 million.

Google cloud includes company’s infrastructure and data analytics platforms, collaboration tools and other services for enterprise customers.

It generates revenues mainly from fees received for cloud platform services and workspace collaboration tools.

Other bets are derived mainly through the sale of internet offerings as well as licensing and research and development services. This includes Alphabet’s X lab, self-driving unit Waymo and other non-Google companies.

Alphabet spent $7.7bn on research and development, nearly 11.8 per cent of its total sales in the third quarter. It was 12.2 per cent more than the R&D expenditure of the same period last year.

Google continued to deliver across its business “by providing helpful and valuable experiences for both consumers and our partners”, said the company’s chief financial officer, Ruth Porat.

“Our consistent investments to support long-term growth are reflected in strong financial performance,” Ms Porat said.

YouTube added more than $7.2bn to Alphabet’s revenues, surging more than 43 per cent annually, and was close to streaming service company Netflix’s third-quarter revenue of $7.5bn.

Google seems to be not much affected by the privacy changes that Apple made to its operating system this year.

Google's new phones – Pixel 6 and Pixel 6 Pro – will be shipped with the latest mobile operating system, Android 12. AFP

The new changes let users to opt in or out of app tracking, restricting how technology companies such as Facebook gather data for advertising purposes.

Google is protected to some extent as it owns the Android operating system.

The new privacy features had a “modest impact on YouTube revenues … focusing on privacy has been core to what we’ve been doing consistently", Ms Porat said.

Retail was one of the biggest contributors to the company’s advertising growth, Google’s chief business officer Philipp Schindler said in an earnings call.

“We continue to see a lot of unevenness … it is clear that uncertainty is the new normal,” Mr Schindler said, referring to the pandemic recovery.

The company rebought and later retired 4.6 million aggregate shares for $12.6bn in the third quarter.

It ended the quarter with total cash, cash equivalents and marketable securities worth more than $142bn.