Google posted revenues of $27.5 billion for the quarter ended September 30, 2017 (Q3 2017). Of this, advertising revenue accounted for $24 billion or 87.6%. And of the total ad revenue, revenues from Google sites contributed $19.7 billion or 82%, while revenues from network members’ properties contributed $4.3 billion. Revenues from ‘Other Bets’ i.e., xyz, stood at $302 million.
Google’s Traffic Acquisition Cost (TAC) for the quarter stood at $5.5 billion, up 31.56% from $4.18 billion for the corresponding quarter last year. TAC was 23% of Google’s total ad revenue for the quarter, as compared to 21% in Q3 2016.
Paid clicks and cost-per-click
There was 47% year-on-year (YoY) increase in total paid clicks, and a 6% quarter-on-quarter (QoQ) increase. Paid clicks on Google sites increases 55% YoY and 7% QoQ, while on Google Network Members’s properties paid clicks grew 10% YoY and 2% QoQ.
The total cost-per-click (CPC) decreased 18% YoY, but witnessed a marginal 1% increase QoQ. On Google sites, CPC dipped 21% YoY and had a similarly marginal 1% growth QoQ, while on Google Network Members’ properties CPC declined 5% YoY and remained stagnant on QoQ basis.
Some other takeaways from Alphabet’s earnings call:
Google’s advertising revenues for the quarter stood at $24 billion, up 21.4% from ad revenues of $19.8 billion in the same quarter last year.
While answering an analyst question regarding Google’s ad experience across mobile and desktop, Alphabet Inc’s chief financial officer, Ruth Porat said that they’re “running a lot of experiments to enhance user and advertiser experience. And the approach continues to be productive, especially because the line of inquiry evolves as user behavior evolves. And so what users wanted in the earlier days of smartphones when screens were smaller is obviously, very different from expectations users have today. Each quarter, the ads team introduces more than 100 enhancements out of a much larger pool of assumptions that they’ve tested. Machine learning is at the center of our processes and systems.”
And in case of desktop, she said that they’re “pleased with the ongoing strength of the business. It delivered solid revenue growth that remains an important form factor for certain more complex tasks. We’ve talked about that in prior quarters. Things like planning vacations or assessing insurance options. And so I think with the strength here underscores the importance of desktop for many users in many tasks, notwithstanding, the growing utility of mobile for users.”
Traffic Acquisition Cost
Porat mentioned that the “increase in sites TAC as a percentage of sites revenues as well as network TAC as a percentage of network revenues, continues to reflect the fact that our strongest growth areas, namely mobile search and programmatic, carry higher TAC.”
“The increase in the sites TAC rate year-over-year was driven by changes in partner agreements and the ongoing shift to mobile, which carries higher TAC because more mobile searches are channeled through paid access points,” she added.
An interesting question was thrown at Alphabet Inc CEO Sundar Pichai during the call regarding TAC: why does Google pay TAC at all?
“We’ve been doing distribution deals for our search for well over a decade and I personally have been involved all the way from the toolbar in the Chrome days. So by now, first of all, we want to construct a win-win construct. So we always want to construct in which we do better when our partners to better. And so doing TAC well aligns us in that way and, historically, it has driven a lot of growth. And so it’s a model we understand. We understand the key economics behind it. And so we are very thoughtful about how we drive it forward. So we are driving it forward in a way in which we know it’s going to give strong both revenue and earnings growth,” explained Pichai.
India & APAC
“In India last month, we launched Tez, a mobile payments and commerce app that already has more than 7.5 million users who have made more than 30 million transactions. I’m really excited about the potential this brings for India’s mostly cash-based economy,” said Pichai. More on this here and here.
Overall, revenues from the Asia-Pacific region witnessed a significant growth year-on-year (YoY). In Q3 2017, revenues from APAC stood at $4.2 billion, up 29.3% from $3.25 billion in Q3 2016.
“Our revenues are up significantly in the region, driven by great results we are driving for existing and new advertisers. That holds true across developed markets like Japan and emerging markets like the Philippines and Vietnam, all of which have seen the number of active advertisers grow by 25% or more in the past 12 months. And this growth is bringing tremendous benefits to our partners there. In the past three years, we have paid out more than $24 billion to our publisher, creator and app developer partners in Asia-Pacific,” informed Pichai.
Google will continue to invest in new subscription-based monetization models for YouTube. “YouTube Red, our first foray into the subscription market, is on track to release over 40 original shows this year and YouTube TV, our live TV subscription service, continues to expand into new markets. It now covers two-thirds of U.S. households and is available in 15 metro areas,” added Pichai. He also mentioned that currently, on average users spend 60 minutes on YouTube on mobile.
Pichai also mentioned that YouTube ads have a 95% viewability rate, which he claimed is the highest in the industry. “We continue to see the industry shift to six-second bumper ads and so greater adoption this quarter from brands like Bear, Ben & Jerry’s, Louis Vuitton and Volvo.”
“We are very excited about the partnerships we are getting here with large retailers, and we are seeing traction globally. We’ve obviously partnered with them through our advertising products. But with shopping, especially as we move on to making shopping more seamless across mobile and newer computing categories like Google Home, I think there’s tremendous interest here,” said Pichai. He also mentioned that “Walmart and Target have recently integrated with Google Home, which means you can order everyday items from them much more easily.”
Cost of revenue
Alphabet Inc’s total cost of revenues, including TAC, for the quarter stood at $11.1 billion, which was an increase of 28% YoY. Other costs of revenues stood at $5.6 billion, up 25% YoY, which was primarily because of Google-related expenses. “Specifically, costs associated with operating our data centers, including depreciation, content acquisition costs primarily for YouTube and hardware-related costs.” Operating expenses were $8.8 billion, up 11% YoY.
- Net Income: Alphabet Inc (formerly Google Inc) posted a net income of $6.7 billion.
- Total Revenues: $27.8 billion, up 24% YoY from $22.5 billion.
- Headcount: 78,101, up from 69,953 in Q3 2016.