Google Parent Alphabet Q1 Revenue Rises 22%, YouTube Ad Controversy Doesn't Hamper Results

By Todd Spangler
April 27, 2017
CREDIT: COURTESY OF ALPHABET INC. /2017 /digital /news /google-youtube-alphabet-q1-2017-1202401702/

The YouTube ad boycott by several hundred advertisers over spots that appeared with objectionable content on the service didn't hurt first-quarter earnings for parent company Alphabet.

The internet giant reported $24.75 billion in revenue, up 22% year over year, and earnings per share of $7.73. That beat Wall Street expectations of $24.22 billion in revenue and EPS of $7.39.

"YouTube revenue continued to grow at a significant rate," Alphabet CFO Ruth Porat said on a call Thursday with investors, without providing details. The biggest contributor to Google's revenue growth was mobile search, she said.

Google CEO Sundar Pichai didn't shed any additional light on YouTube revenue trends, but said the company "continued to see extraordinary growth and opportunity" for the video platform worldwide. He noted that YouTube users now watch more than 1 billion hours of video every day, a milestone it passed in late 2016.

"We work incredibly hard to create the best environment for brands on YouTube," said Pichai, citing Google's recent efforts to provide better controls to manage and monitor where ads appear on YouTube. "We've been actively engaged in conversations with clients" about the new tools and policies, he added.

Alphabet doesn't break out revenue for YouTube. But the falloff in video ad revenue was a concern for investors, after a controversy that erupted last month when marketers discovered that their commercials appeared in extremist hate-speech videos on YouTube. Advertisers that froze spending on YouTube and Google ad networks included AT&T, Verizon, Dish Network, Starbucks and JP Morgan Chase. According to a note from analysts at Nomura Instinet the issue could result in YouTube losing $750 million in ad sales in 2017, but in the context of Alphabet's total revenue that's close to a rounding error.

Pichai said that among the steps YouTube is taking to ensure ads don't show up in unexpected places, it has implemented new technical solutions, including automated machine-learning processes to help enforce policies better. Google's ad team, he added, has made "thousands and thousands of calls" to customers about YouTube's efforts to improve the advertising platform.

The latest flare-up around YouTube advertising is similar to other large-scale issues Google has tackled before, like search ranking and spam, Pichai told analysts. "These are the classes of problems our engineers are really, really good at working," he said.

In Alphabet's Other Bets segment, which includes Nest, Verily, Google Fiber and Waymo, revenue increased 48% to $244 million, while the segment's operating loss increased to $855 million (versus $774 million in Q1 2016).

In the first quarter of 2017, Google said it refined its methodology for paid clicks and cost-per-click to include additional categories of YouTube's TrueView engagement ads and exclude non-engagement based trial ad formats. The change resulted in "a modest increase" in paid clicks along with a modest decrease in cost-per-click.

The company's headcount stood at 73,992 as of the end of March, up 15% from the year prior; the most sizable increase in employees was in the Google Cloud division, Porat said. Alphabet had $92.4 billion in cash and equivalents and marketable securities at the end of Q1, up from $86.3 billion at the end of 2016.

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