Alphabet’s Q4 Revenue Rises backed by YouTube and Mobile Growth Performance

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Alphabet Inc., the parent company of Google, reported total revenue of $26.1 billion which was a 22% year on year (YoY) increase and 3% more than the consensus projected estimate of $25.2 billion. The increase in revenue is attributed to mobile and YouTube performances.

Mobile search is Alphabet’s biggest growth driver and this quarter makes it the sixth consecutive quarter when this segment of the business has taken the lead for the company’s growth.

The revenue of Alphabet has two main segments: Google and Other Bets. The revenue of Google Inc. was $25.8 billion, a YoY increase of 22%. This revenue comes from Android, Maps, Chrome, Google Play, YouTube, Google Cloud, the company’s range of hardware products, and advertising.

Other Bets’ revenue comes from Fiber, Nest, and Verily and for Q4 2016, the revenue totaled to $262 million, a 75% increase over last year’s $150 million.

The primary drivers of growth for Alphabet were YouTube and mobile search. Ruth Porat, the CFO of Alphabet Inc., said that the revenue from YouTube is growing significantly driven primarily by video advertising. The company’s revenue from tablet and desktop advertising is also witnessing significant growth.

Robust performances at AdMob and programmatic also contributed to the revenue increase at the company’s 3rd party network sites. Revenues from other businesses of Google such as the hardware business, Google Play, and Google Cloud also witnessed growth.

The YoY growth rate for the fourth quarter of 2016 saw a huge jump of 62% as against the third quarter’s YoY growth rate of 39%. Google attributed this big increase to robust growth across the various businesses. Another important element to keep in mind with regard to the Q4 revenue figure is that it includes sales from Google Home and Pixel phones.

Additionally, Google ads are becoming more efficient cost-wise which added to the revenue growth. For example, paid clicks or the amount that gets paid when people click these ads showed a YoY increase of 36% and QoQ (quarter on quarter) increase of 20% whereas cost-per-click (the amount that the company charges for ads) showed a YoY decrease of 15% and a QoQ decrease of 9%. Paid clicks are bulk drivers of Google’s revenue.

As consumers spend more time consuming digital media, advertisers are going to increase their advertising budgets towards digital channels and this scenario is not expected to change anywhere in the near future.

The digital advertising segment in the US is projected to grow considerably through 2021 when it is expected to reach annual revenue of almost $100 billion. This projected revenue is expected to be driven primarily by the migration of ad budgets from the conventional TV ads to digital video ads and, of course, increased social spending by consumers.

Through this growth phase, mobile ads are expected to be the leading destination for digital ads. This trend is expected to increase ad budgets significantly towards mobile media thereby reducing the mobile opportunity gap, the term that is given by advertisers to the huge disconnect that presently exists between the budgetary share for mobile ads and the time spent by people on mobile devices.

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