Google Ad Surge Drives Up Profits For Parent Firm Alphabet

Google parent Alphabet on Tuesday reported that quarterly profit more than doubled as digital advertising surged with more people relying on the internet during the coronavirus pandemic.

Profit in the first quarter leapt to $17.9 billion from $6.8 billion in the same period a year ago while revenues jumped 34 percent to $55.3 billion, led by gains in advertising and cloud computing services.

"Over the last year, people have turned to Google Search and many online services to stay informed, connected and entertained," said Alphabet and Google chief executive Sundar Pichai.

The surge in Alphabet's earnings comes as the tech giant faces increased scrutiny from regulators regarding its power.

"Google essentially manufactures money; they are almost entirely ads," said analyst Rob Enderle of Enderle Group.

"There is not a risk of downturn in revenue, it is that regulatory action strips the revenue from them."

Facebook and Google are the "short list" when it comes to scrutiny by regulators in Europe and the United States because of "their broad impact on the political process and almost complete dominance of ad revenues," the analyst maintained.

Google is among internet giants in the crosshairs of regulators and critics concerned about whether it unfairly wields its power to dominate markets and fend off competition.

The Silicon Valley giant reported robust gains in search advertising, those messages tied to the leading internet search engine, as well as for its YouTube video sharing platform.

"People have turned to Google search more than ever since the pandemic began," Pichai said on an earnings call, noting queries ran a gamut from Covid-19 questions to job hunts.

While the pandemic has brought tremendous challenges for small businesses, it has also created opportunities for entrepreneurs to tailor offerings for new trends, according to Google chief business officer Philipp Schindler.

"Consumers are spending more time online; they're buying more online, and they were willing to try new brands and eager to support local businesses," Schindler said on the call.

The pandemic has sped up a trend in people using the internet for shopping, work, learning and entertainment.

Google is a centerpiece of online activity, with offerings such as its search engine, ad marketplace, and YouTube video platform.

Money taken in by Google's cloud computing division, which competes with services offered by Amazon and Microsoft, topped $4 billion, up from $2.7 billion in the same period a year earlier.

Amazon Web Services is the top cloud service provider, with nearly a third of the market, according to industry tracker Canalys.

Microsoft's Azure platform is on the heels of AWS, while Google is a distant third, Canalys said in a market report.

Microsoft on Tuesday reported that profits rose sharply in the past quarter amid strong momentum in cloud services for businesses.

The results showed ongoing momentum for Microsoft as it focuses on services for enterprises in the internet cloud, which has become more critical during the global health crisis of the past year.

Meanwhile, Alphabet continues to invest heavily in data centers and other infrastructure.

"Our cloud services are helping businesses, big and small, accelerate their digital transformations," Pichai said.

Alphabet intended to continue beefing up its ranks of engineers and investing in office space despite embracing "hybrid" work models that let employees do jobs remotely some of the time.

"We do value bringing people together in the office," chief financial officer Ruth Porat said on the call.

"We are looking at less density per employee, so even with a hybrid work environment we will continue to need space."

Alphabet shares were up nearly five percent in after-market trades that followed release of the earnings figures.

"Google had an absolute monster quarter with ads leading the way," said analyst Patrick Moorhead of Moor Insights and Strategy.

"YouTube grew an eye-watering 49 percent year-over-year, which I attribute to increased YouTube viewing and increased YouTube TV subscribers."