Google owner Alphabet Inc (NASDAQ:GOOG) beat Wall Street expectations with first-quarter revenue and earnings, but fears over rising costs muted the market’s reaction.
Excluding a US$3.40 a share gain from the adoption of a new accounting standard, the Silicon Valley giant reported earnings of US$9.93 per share on revenue of US$31.1bn.
READ: Alphabet price target trimmed by Credit Suisse
That was comfortably ahead of Wall Street expectations, with analysts having forecast earnings of US$9.28 and revenue of US$30.3bn.
Cost-per-click – the amount Google is paid every time an ad is clicked on – fell 19% compared to the first quarter of 2017.
Google has been trying to grow the volume of ads to make up for this downward trend, and it recorded a 59% jump in ‘paid clicks’ – number of ads – versus the year-ago period.
“Our ongoing strong revenue growth reflects our momentum globally, up 26% versus the first quarter of 2017 and 23% on a constant currency basis to US$31.1bn,” said Chief Financial Officer Ruth Porat.
“We have a clear set of exciting opportunities ahead, and our strong growth enables us to invest in them with confidence.”
Traffic acquisition costs soar
But traders’ reaction was mixed on the results, with shares rising immediately following the release before falling into the red. At 5pm ET, they were broadly flat at US$1,068.
The muted market reaction is likely to down to fears over rising costs, with traffic acquisition costs – which have caused the shares to fall before – soaring to US$3.4bn (1Q 17: US$2.3bn), or 24% of all ad revenues (1Q 17: 22%), slightly higher than the 23.4% analysts had expected.
As for Google’s “other” business – non-ad divisions like Google Play and Google’s cloud business – that raked in US$4.4bn in the first-quarter (1Q 17: US$3.2bn) and now accounts for almost 20% of Google’s total business.
Speaking of “other bets” – things like Alphabet’s self-driving car and robotics divisions – revenues there grew to US$150mln from US$132mln a year earlier.