Alphabet Q4 revenues hit $32bn, while Amazon’s ad business unit grows 60%

Share prices in Google-parent Alphabet dropped by as much as 4% in the immediate aftermath of the company making its latest earnings disclosure, as Wall Street analysts had expected a more impressive performance for the quarter.

Amazon's growing advertising proposition is tipped to rival that of Google and Facebook

Meanwhile, Amazon also posted its latest quarterly results, with net sales of $60.5bn for the quarter, up 38% year-on-year, with the company reporting that its voice assistant service Alexa exceeded expectations, while the unit that houses its emerging advertising offering grew 62% year-on-year to hit $1.735bn.

Alphabet results

Both of the online behemoths published the results on February 1, with Alphabet announcing revenues of $110.9bn for 2017, representing a 23% year-on-year rise, with the Google-parent closing the year with $32.3bn in revenue for the final quarter of the year, an increase of 24%.

Google’s aggregate cost-per-click continues to slide – 6% year-on-year, see image – while advertising revenues from Google-owned and operated properties came in at $27.2bn for the quarter.

Responding to questions from financial analysts, Google chief executive officer Sundhar Pichai and its finance chief Ruth Porat, also noted the contribution of mobile advertising, YouTube, and DoubleClick to its overall revenue, albeit, this is driving up costs.

Traffic acquisition costs (TAC) for the period was $6.5bn. It is typically Alphabet’s biggest cost of revenue, and was up 33% year-over-year, due to the higher costs associated with two of its biggest growth-drivers in mobile and programmatic, Porat said on the call.

"This is because more mobile searches are channeled through paid access points,” she further explained, adding that “changes in partner agreements” with its network partners was also increasing costs.

“Programmatic continues to be a strong contributor and generate growth… programmatic buying and AdMob continues to see strong adoption,” she added. “What you’re also starting to see here is growth in the traditional AdSense business.”

Meanwhile, Pichai said that Google remained confident when it came to the impact of the upcoming General Data Protection Regulations (GDPR), stressing that the company was making preparations for compliance when the legislation is enacted in May.

In a note to investors, Brian Wieser, senior analyst at Pivotal Research, said he viewed the results "favorably", and they were in fact better than his own earlier predictions. "Alphabet’s core Google division faces many longer-term headwinds (primarily related to the limits to growth of digital advertising at least in lieu of significant investments in margin-eroding content) that we don’t think are fully appreciated by investors," he wrote.

"GDPR may prove to be a drag on the industry in Europe, but search is probably more immune from negative effects than most other types of digital advertising," added Wieser.

Advertising is a 'key contributor' to Amazon's growth

Separately, Amazon executives were probed on multiple occasions on the developments of its growing advertising business by financial analysts on its subsequent call.

Analysts heard how its advertising offering was a “key contributor” to its emerging business sector, and that that it was “particularly strong in North America”, adding that it would “build more tools” in order to make the ad experience “additive” in a manner what would please advertisers and customers alike.

According to Collin Colburn, analyst on the B2C marketing team at market research firm Forrester, use of Amazon as a search engine will continue to grow.

He says the fact that Amazon is built like a product-specific search engine – consumers can search for anything product-related and get relevant results better and quicker than they can with Google.

Speaking earlier with The Drum, Colburn noted Amazon is unique in that its product listing pages have virtually everything a shopper could want to know – including price, description, pictures and reviews – which gives customers a one-stop shop for research even if they aren’t actually going to buy from Amazon.

The disclosures were made during the same round of quarterly earnings calls that saw Facebook reveal that its recent algorithm tweeks saw it lose almost 50 million hours of engagement.

During the same round of calls, Unilever's leadership also spoke of their amibitions to drive savings in their advertising spend.

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