Profits by Google’s parent miss expectations

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Profits by Google’s parent miss expectations

Google parent Alphabet reported profit that missed analysts’ expectations after the Internet search giant paid more to partners to distribute its services and ads on mobile devices.

First-quarter earnings, before certain items, were $7.5 a share, the company said Thursday in a statement. That was below analysts’ average projection of $7.96, according to data compiled by Bloomberg. Revenue, excluding payments to distribution partners, rose 18 percent to $16.47 billion, just missing analysts’ forecasts of $16.59 billion.

Google chiefly makes money from advertising and a lot more ads are now shown on smartphones. Mobile devices have helped Google get its services in front of more people. But the company has to pay more to partners for this mobile reach, compared to what it pays for distribution over the web to personal computers.

Traffic acquisition costs, or TAC, paid to distribution partners in the first quarter jumped 33 percent to $1.22 billion, versus a year earlier. That compares to a 20 percent increase in revenue generated from Google’s own websites. For the company’s Network business, which runs ads for other websites, TAC rose 5.7 percent to $2.57 billion in the same period. That compares to a 3.2 percent increase in Network ad revenue.

“The TAC rate is higher on mobile. Mobile’s growing at a faster rate so what you’re seeing here is a mix shift,” said Alphabet Chief Financial Officer Ruth Porat, during a conference call with analysts. “Trends driving revenue are accompanied by greater required investment in our ecosystem to support that revenue growth.”

First-quarter results were also dented by a $213 million loss from the company’s “Other income” line. That included losses it recorded on some of its investments and the impact of currency fluctuations, Porat said.

There was better news from Alphabet’s Other Bets division, which include its Fiber Internet service, Verily health-care and Nest smart-home companies.

As Google’s ad businesses have expanded, growth has slowed, and the company has sought to make up for that by turning to these new businesses, along with subscriptions and cloud computing services. Last year, Google reorganized into the Alphabet holding company to help it create and build new ideas. So far, growth in further-afield bets have failed to offset the deceleration in advertising growth. Bloomberg

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