Alphabet Inc. reported high revenue for the second quarter, eaysing concerns about growth challenges of Google's advertising business.
Driven by ad sales, the company's second-quarter revenue and earnings beat expectations. In addition, the world’s largest online search and ads firm offered no worrisome guidance about increasing regulatory scrutiny.
Alphabet, which generates about 85 percent of its revenue from sales of ad space and ad technology, reported total second-quarter revenue of $38.9 billion. That was up 19% over last year and compared with 17% growth in the first quarter.
Google’s advertising sales grew 16% overall.
Google has grown its advertising business by stuffing more ads into mobile search results, luring viewers to YouTube and automating the web’s advertising process.
The results helped Alphabet dismiss as a rare blip a $1 billion revenue miss in the first quarter.
However, questions linger about whether privacy, content moderation and antitrust rules proposed or already passed in the United States and other high-revenue countries will slash ad prices. Google also faces an industrywide slowdown in ad sales in the United States and Europe, with revenue from emerging markets not yet picking up the slack.
Google Chief Executive Sundar Pichai told analysts on Thursday that advances in ad targeting and new services for consumers worldwide would spur growth. He said the company had survived calls for regulation before.
“We understand there will be scrutiny,” and “we will engage constructively,” he said.
The company is also investing heavily in new technology, such as cloud computing and a voice-controlled digital assistant, while experimenting with different ad formats.
“Our effort to build a more helpful Google for everyone brings countless opportunities to help users, partners, and enterprise customers every day,” said Pichai. “From improvements in core information products such as Search, Maps, and the Google Assistant, to new breakthroughs in AI and our growing Cloud and Hardware offerings, I’m incredibly excited by the momentum across Google’s businesses and the innovation that is fueling our growth.”
"With revenues of $38.9 billion, up 19% versus the second quarter of 2018 and up 22% on a constant currency basis, we’re delivering strong growth," said Ruth Porat, Chief Financial Officer of Alphabet and Google. "Our ongoing investments in compute capabilities and engineering talent reflect the compelling opportunities we see across the company."
Pichai said quarterly revenue from licensing cloud computing services and workplace software jumped to about $2 billion, from its last disclosure of $1 billion at the end of 2017. He said the cloud unit would triple its sales staff over the next few years.
Cloud-computing is Google’s fastest-growing business and second-quarter results put the operation on course to generate more than $8 billion annually, Pichai said. That’s around a quarter of the sales produced by Amazon’s AWS cloud unit.
Other revenue, which includes cloud business and consumer hardware, grew 40% to $6.18 billion.
Google executives also talked about the company’s less-successful products: its in-house smartphone business.
“With the launch of Pixel 3a in May, overall Pixel unit sales in Q2 grew more than 2x year-over-year,” Pichai said, referring to a newer, cheaper version of the smartphone.
Porat indicated costs would increase through the rest of 2019. The company plans to hire more employees for the cloud business, YouTube and the machine-learning field. Sales and marketing costs will also grow at the end of this year as Google promotes its products for the holiday season, she said.
The Google parent also announced a plan to repurchase $25 billion of the company’s Class C stock, the biggest buyback in the company’s history. The cloud business grew strongly, too.