Google ad sales climb 17% to record $33.9B on automated bidding muscle

Brief:

Google's parent company Alphabet reported a 17% gain in ad revenue to a record $33.9 billion in Q3 from a year earlier, per an announcement. More than half of ad spending on search comes from automated bidding, while 1 million advertisers use the company's responsive search ad format introduced last year that uses machine learning to create a customized ad for searches, Alphabet CEO Sundar Pichai said in a call with analysts.
Local advertising is a significant focus for Google in connecting small businesses with nearby customers, including its Maps navigation app, Pichai said on the call. The company again didn't disclose user metrics for YouTube aside from saying it has more than 2 billion users worldwide. Pichai said the video-sharing platform's subscription products, which include YouTube Music and YouTube Premium, are growing.
Google declined to confirm media reports that it had bid to acquire Fitbit, the maker of wearable devices such as fitness trackers and smartwatches. While overall revenue climbed 20% to $40.5 million, rising costs pressured its profits, which tumbled by 23% to $7.07 billion, or $10.12 a share to miss Wall Street's estimates of $12.42.

Insight:

Google's Q3 ad growth of 17% was slightly better than the 16% gain in the prior quarter, although was less than Amazon's estimated 45% gain from a smaller revenue base. The e-commerce giant is a relative newcomer to the ad market, and is a growing threat to Google in the areas of product searches. Amazon's revenue from search ads are forecast to jump 65% to $11.7 billion by 2021 from this year, eMarketer predicts. Facebook, the other dominant company in the global digital ad market, will report results on Oct. 30.

The search giant's "other revenue," which includes hardware like Pixel phones and cloud products, surged 39% to $6.43 billion, beating estimates of $6.32 billion, according to FactSet data cited by CNBC. Google this month showcased the Pixel 4, revamped Pixel Buds headphones, a Pixelbook laptop, several Nest smart home devices and next month's launch of game streaming service Stadia at its annual "Made by Google" event. While the company declined to confirm reports about a bid for Fitbit, the acquisition would help the company to solidify its market position in wearable technology.

Google has faced difficulty in gaining market share from rival smartphone makers. Chinese tech giant Huawei recently overtook Apple as the second-biggest maker of mobile phones after Samsung, while Google isn't ranked in the top five, according to the International Data Corp. The researcher estimated early this year that Pixel shipments grew 36% to 4.68 million in 2018 from a year earlier, but still made up just 0.33% of the total smartphone market.

Alphabet didn't provide any information about growing antitrust scrutiny from the U.S. Justice Department and the Federal Trade Commission. Alphabet, Amazon, Apple and Facebook are among the Silicon Valley giants under scrutiny for possibly stifling competition in apps, e-commerce and digital advertising.