Google revenue surges as online advertising market thrives

Google’s parent flexed its digital dominance thanks to a gush of online advertising as economies reopen from the pandemic.

Google has emerged stronger from the pandemic. Picture: AFP

Google’s parent company flexed its digital dominance, reporting its largest second-quarter sales growth in 14 years behind a gusher of online advertising from businesses vying for customers across reopened economies.

Alphabet reported second-quarter revenue of $US61.88 billion, an increase of 62 per cent from a year earlier, when its unassailable ad business tumbled as the coronavirus crippled the economy. Profit more than doubled to $US18.53 billion, with per-share earnings surpassing analysts’ expectations.

The robust results showcased how Google has emerged stronger from a Covid-19 pandemic that accelerated e-commerce purchases, online food orders and streaming video consumption. The burst in digital activity led companies to pour marketing dollars into ads across Google search, Maps and YouTube, underscoring the pre-eminence of its products.

The company posted $US50.44 billion in sales from advertising, a 69 per cent increase helped by a red hot US market where ad spending is on track to be the fastest in the post-war era. YouTube’s ad business collected $US7 billion in revenue, increasing 84 per cent from a year earlier.

Other tech companies have benefited from a soaring digital ad market. Snap last week reported revenue more than doubled behind strong user growth, while Twitter reported sales surged 74 per cent behind increased advertising.

Google’s expected sales growth reflects a return to form for a money-making machine that reported revenue increases every quarter for a decade. The pandemic brought a momentary end to that streak when sales fell 1.8 per cent in the June period last year as major advertisers slashed spending, particularly in a travel sector that accounts for about 15 per cent of sales.

Since then, Google has reported an acceleration in revenue each quarter. With vaccinations allowing countries to reopen, travel and leisure companies are spending big to win over customers taking flight after a year of being at home.

The uptick in digital ads should benefit Google and its peers through the rest of the year. GroupM recently raised its forecast for global advertising sales to $US749 billion for the year, an increase of 19 per cent from last year, up from its prior expectation for 12 per cent growth.

Regulators and lawmakers in the US and abroad have raised concerns that the company’s resilience speaks to the power of its products. Google is the world’s largest digital ad company by revenue. Its search engine has a 92 per cent share of worldwide internet searches and its Maps offerings have an 89 per cent share of digital navigation services.

In early June, Google agreed to pay French regulators $US270 million to settle a case alleging it abused its leading position in digital advertising. Soon after, the European Union opened a formal investigation into its digital ad business, including its alleged exclusion of competitors from brokering ad buys on YouTube. This month, three dozen states filed an antitrust lawsuit in US District Court for Northern California, alleging the company operates an illegal monopoly with its Play app store.

It also faces a lawsuit from the Justice Department, alleging it uses exclusionary agreements to preserve a monopoly for its search engine. That trial and two other state lawsuits are set to begin in 2023.

Google has long said that it operates in a competitive market where people choose to use its services and ad tools because they are effective. It says its Play store is part of an open operating system where customers can download apps directly from developers.

Investors have largely shrugged off the suits, settlements and investigations, sending shares up more than 50 per cent this year through Tuesday’s close. Analysts are confident that Google, which reported $US135.86 billion in cash, cash equivalents and short-term investments at the end of June, has ample resources to pay fines.

“I don’t mean to pooh-pooh it, but investors are focused on the strength of the underlying business, not the nicks on the surface,” said Jordan Kahn, president of ACM Funds, a Los Angeles-based firm with $US175 million under management that counts Alphabet as its second-largest holding. “Down the road, if the government gets it together, it may be significant.”

The strength of Google’s advertising business is expected to overshadow increased sales from its cloud-computing division. The company has been spending aggressively to challenge the dominance of Amazon.com and Microsoft Corp in the lucrative business of cloud storage. It reported cloud sales rose 54 per cent to $US4.63 billion in the quarter.

Still, its cloud-computing division remains a small-scale player with a 6 per cent share of a market that Amazon and Microsoft command with shares of 41 per cent and 20 per cent, respectively, according to research firm Gartner Inc.

Wall Street Journal