Dive Brief:
- Google parent company Alphabet surpassed Wall Street analysts’ predictions in its Q3 earnings report with sales up 24%, pushing its stock to a record high, per a report from CNBC.
- The results were based on strong ad revenue. While ad prices actually went down more than expected in Q3 and traffic costs were higher than expected, there was also a larger than expected increase in the volume of ad clicks globally, particularly in Asia. Traffic acquisition costs (TAC) were $5.502 billion, cost-per-click (CPC) dropped 18% and aggregate paid clicks rose 47%.
- Alphabet reported Bear, Ben & Jerry's, Louis Vuitton and Volvo adopted six-second bumper ads on YouTube during Q3.
Dive Insight:
The moves to mobile and programmatic are two reasons Google has faced pressure on advertising profit margins, but the Q3 results should give the tech giant some breathing space because while both developments pushed down ad revenue fundamentals like traffic cost and ad prices, the increased inventory provided by mobile and through programmatic sales also led to more clicks.
In a call with analysts to discuss the results, Alphabet CFO Ruth Porat said the quarter was “terrific” for Google, and by extension its platforms like YouTube, as well as Alphabet’s “other bets.” Google’s business lineup includes Google Shopping, Maps, YouTube, Android, Chrome, Google Play, a virtual reality (VR) group and Google Cloud data centers. Google also earned revenue through hardware sales such as its Pixel smartphone and Google Home devices.
In Shopping, Alphabet CEO Sundar Pichai said to expect more progress and a lot more announcements following the recent announcement of partnerships with Walmart and Target to enable purchasing from Google Home devices. Google has been trying to build an e-commerce business for years but is seeing traction for the first time now that it is partnering with big retailers instead of trying to do an end-run around them.
"And I think we are going to be relentlessly focused on making the buying experience much more seamless for users," Pichai said. "So there's a lot more to come."
More broadly, Alphabet sees the e-commerce vertical as an opportunity across a variety of its services — including cloud, advertising and now shopping — going forward, the executive added. Payments could also be part of the equation as Alphabet continues to work on developing this area.
"To us, as a vertical, we see huge opportunities there," Pichai said. "There's a lot of flywheel effects we see."
On the advertising side, YouTube continues to be an important area of growth for Google and is seeing momentum with six-second bumber ads. YouTube now has a 95% ad viewability rate compared to 66% for other video ads, according to Pichai. In Q3 a number of brands adopted six-second bumper ads, including Bear, Ben & Jerry's, Louis Vuitton and Volvo.
On the topic of voice, Pichai said it is still an emerging area but one with a lot of opportunities going forward.
