Alphabet Earnings: Profits Triple and Slump Worries Ease

The slump at Google’s parent company, Alphabet, appears to have been brief.

The company said on Thursday that profits in the most recent quarter had tripled from a year earlier. The strong results, which topped Wall Street expectations, should ease worries — provoked by a disappointing first quarter — that the company was slowing down after years of fast growth.

Alphabet’s stock price surged 9 percent in after-hours trading after the results were announced.

The company has always been able to rely on one thing: Its advertising machine would generate cash at a furious pace.

Alphabet said overall revenue was up 19 percent, to $38.9 billion. It had $9.9 billion in profits, aided by a $2.7 billion gain from investments. The quarterly profit gain looked especially large because Alphabet accounted for a $5.1 billion fine from the European Union last year.

But there are clouds on the horizon. Growth in paid clicks on advertisements on Google websites decelerated for a second straight quarter — though they were still up 28 percent. When Alphabet reported results for the first quarter, revenue came in below expectations. Paid clicks on Google websites had grown by 39 percent — a cause for celebration at most companies but significantly off the 50-percent to 60-percent growth that Alphabet recorded in previous quarters.

Alphabet owns many of the most visited properties on the internet. But it is approaching near saturation for ads with search results. Content moderation problems at YouTube have also forced the company to be less aggressive on which videos can carry advertising and the measures it takes to keep viewers on the platform.

It seems like a matter of time before Google takes its turn in the regulatory glare. The company has been investigated and been hit with fines totaling about $9 billion in Europe three times since 2017. In contrast, it has skated by without much scrutiny at home.

But reports surfaced in May that the Justice Department was exploring whether to open a case against Google for potential antitrust violations. Last month, the House Judiciary Committee also opened a bipartisan inquiry into the power and practices of major technology companies.

Earlier this week, the Justice Department said it would start an antitrust review into how internet giants had accumulated market power and whether they had acted to reduce competition. While Google was not identified as a target, the department said it was looking into concerns about search.

Sundar Pichai, Google’s chief executive, said in a call with investors on Thursday that the company understood that there would be scrutiny, but “it’s not new to us.” He added that if Google had to answer questions, it would do so “constructively.”

Advertising accounts for roughly 85 percent of Google’s revenue. While the percentage of non-advertising revenue has grown in recent years, it has not been easy.

Of those other businesses, the biggest investments have been made in Google Cloud. Alphabet does not break out results for Google Cloud, but it drops morsels of information about it.

The company said on Thursday that Google Cloud reached an “annual revenue run rate” of about $8 billion. That means if the unit’s revenue for a given period of time — a day or week or month — was stretched over a year, it would be $8 billion.

In February 2018, Alphabet said Google Cloud had reached a $4 billion annual revenue run rate. The company said it planned to triple the size of its Cloud sales team over the next few years.

Alphabet also has a wide range of so-called “Other Bets,” including its Waymo self-driving car company and Loon, a service to provide cellular connectivity using balloons.

While some offer the promise of a major payoff one day, they are still in very early stages and racking up losses. The other bets posted an operating loss of nearly $1 billion in the second quarter.

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