It’s been a good quarter for tech and a very good one for Google. On Thursday, its parent company, Alphabet, posted earnings that beat analyst expectations, helping lift its share price 6% for the week.
This is remarkable because, not so long ago, Google looked like a company that was running out of gas. Its core search business looked like it was on the road to stagnation, and investors had grown impatient with its money-losing “moonshot” bets on futuristic technology.
So what explains Google’s great quarter? One way you can look at it has (for now) dispelled three big worries that were hanging over the company. Here’s a summary:
1. Google fixed its mobile advertising problems
Desktop search ads are a money machine for Google, but the market for them is mature. Meanwhile, mobile ads presented a problem because the screens are small and brands won’t pay as much. This led some to fret that Google’s longtime growth story was coming to an end. So much for that. As the Wall Street Journal reported:
“The biggest contributor to growth was mobile search,” said [the company]. As it did during its last earnings call, Google emphasized how fast mobile shopping—fueled by mobile search—is growing in particular. [CEO Sundar] Pichai cited the example of the retailer Williams Sonoma, which he said enjoyed a 70% increase in mobile sales year over year.
Meanwhile, it appears ad revenue from YouTube is growing quickly as well—meaning the desktop slowdown is not such a problem for now.
2. Google’s “other” category is no longer a black hole
Google dabbles in all sorts of other businesses—cars, drones, robots, and smart cities, for example. But while such projects far-out there were a scientist’s dreams, they were an investor’s nightmare.
The arrival of chief financial officer Ruth Porat in 2015, however, has meant new fiscal discipline on the so-called “other” businesses. While “discipline” in Google’s case means the moonshots are losing less money, the latest earnings call also brought a new form of good news: Google is now making real money from something besides search.
“The business, categorized as “Other Revenue” in its earnings report, posted a 49.4% jump in revenue to $3.10 billion on Thursday—an amount that is already bigger than Twitter’s annual revenue. The business now represents about 13% of Alphabet’s total revenue, compared with 10% a year earlier,” notes a Reuters report, which points to revenue from things like Pixel phones and cloud computing services for business customers.
3. Antitrust and Ad Controversy Worries Recede
Google’s negative nellies have warned that the company risks running into antitrust actions, or a financial backlash over its ads appearing on extremist or hate sites. But neither of these threats look very dire right now.
On the regulatory front, it appears the Trump Administration is uninterested in enforcing antitrust rules much at all. It’s only slight hyperbole to say in this political climate that Google could get approval to acquire both Facebook and New Zealand.
And as for the ad controversy—which recently led some brands to vow they would pull their money from Google—it doesn’t appear to have affected Google’s finances. It’s likely that the company’s vow to do more to police its ads, along with news of big changes to its search algorithm, has placated advertisers for the time being.
