If you want to know about the secretive work going on inside Google, its latest figures are your first clue
These are the vital signs of a company that’s barrelling headfirst into the future, innovation at its core, rivals barely nipping at its heels
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Your support makes all the difference.Granted, it would probably come across as totally foolish, even in the context of one of the world’s largest corporations, to describe a $2.7bn (£2.1bn) fine as a “slap on the wrist”. But when Google’s parent company reported earnings this week, that’s the phrase that may have come to mind.
On Monday night, Alphabet – the sprawling business that most notably owns Google, but also YouTube, Android and several other brands – reported a 21 per cent leap in revenue for the most recent quarter.
It made $3.5bn in net income on sales of $26bn. It beat the average estimate for earnings per share in a poll of Wall Street wonks. Google ad revenue rose more than 18 per cent to $22.7bn and revenue from other Google products – think Pixel smartphones, the Play Store and the cloud business – rose more than 40 per cent to more than $3bn.
These are the vital signs of a company that’s barrelling headfirst into the future, innovation at its core, rivals barely nipping at its heels. It does not look like the balance sheet of an outfit that’s been slapped with a record-breaking EU fine, of one that’s battling a sweeping advertisers’ revolt, or of one that’s still contesting bitter accusations of tax avoidance. But it is.
A few weeks ago I wrote a piece arguing that – tempted by the prospect of massive returns, break-neck modernisation and rock-bottom funding costs – we could be heading for the next big tech sector bust. I haven’t changed my mind, but Alphabet’s results indicate that the EU will not be the one to bring Goliath to his knees – if indeed anyone will.
Firstly, it’s important to remember that not everything is rosy over in Mountain View. The company is still heavily dependent on search advertising, and the amount that Google is generating per click on ads has fallen more than 20 per cent from this time last year.
The EU is not out of the picture yet either. Last month’s fine pertained to Google abusing its dominant position in the fiercely competitive and rapidly expanding world of online shopping. But Brussels is sitting on two more – potentially chunky – antitrust probes against the group and analysts are concerned about what further penalties could mean for the way in which Google can operate.
It’s a serious consideration for investors, consumers and major clients, but tech history has taught us that anticipation is everything and Alphabet is perhaps the model for that. It’s been future-proofing since its inception by diversifying way beyond the bread-and-butter search engine of the 1990s that took full minutes to load.
Monday’s results showed the sheer extent to which YouTube is driving revenue, for example. The streaming service’s chief executive in a blog post last month said that YouTube had surpassed the 1.5 billion threshold for monthly viewers. On average, she said, viewers spend an hour a day watching YouTube. Naturally, there’s raging competition, from the likes of Netflix and Amazon Prime, but Alphabet has got its eye on the prize.
On a call with investors, chief financial officer Ruth Porat said that Google Home (Alphabet’s counterpart to Amazon’s Alexa) and Google WiFi (its own line of routers) were high performers. Cloud computing is a rapidly expanding business into which the company has ploughed heaps of money. And then there’s the whole mottled universe of “Other Bets” – as mysterious and exciting as the name suggests.
When Google first started out, management allegedly followed a “20 per cent rule”, which prescribed that employees should spend a fifth of their time on projects outside of their conventional workflows to explore new ideas and get their creative juices flowing.
The secretive nature of Google’s inner workings makes it hard to determine just how successful that philosophy has been over the years, but some reports suggest that it actually led to the emergence of fundamental cornerstones of the business like Gmail, Adsense and even Google News.
Projects currently sitting in the “Other Bets” basket include Calico Labs, a group of top scientists doing research into ageing and how to prolong human life, smart home technology company Nest, and a venture called Verily, which aims to reinvent healthcare. It’s developing glucose-sensing contact lenses to help people monitor their diabetes. An enterprise called X is another one to watch. That’s the part of Google working on self-driving cars and Google Glass.
Google and Alphabet do face a vicious raft of headwinds in many guises. The EU can’t be ignored and while June’s fine might have left the balance sheet with a trivial dent this time, it’s impossible to know for sure how damaging the next charge might be.
Crucially, though, Alphabet is aware of all of this. It’s fighting battles on countless fronts – with rivals, authorities as well as public perception and demand – but also exploring opportunities on just as many. While it may happen upon a roadblock in one direction, there will always be an alternate route to take.
Analysts at JPMorgan set a price target for the stock at $1,115, up from just over $960 on Tuesday morning. Over the past year shares in the group have already added a staggering 27 per cent – and it hasn’t been an easy year.
A slap on the wrist might be inconvenient and embarrassing for the best of companies, but Alphabet and Google have both done more impressive things than turning slaps on wrists into high fives. I suppose it’s all a matter of perspective.
Listen to Josie Cox discuss a tech bubble burst in our Double Take podcast.
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