By Paresh Dave and Munsif Vengattil
OAKLAND, Calif./BENGALURU (Reuters) – Google parent Alphabet Inc <GOOGL.O> on Thursday returned to sales growth in the third quarter, beating analysts’ estimates, as businesses initially hobbled by the coronavirus pandemic resumed advertising with the internet’s biggest supplier of ads.
Alphabet shares rose 7% after ending regular trading at $1,556.88, up 13% on the year.
Wall Street had expected a rebound from Alphabet because the company said in July that advertiser spending was inching back following a March plummet due to lockdowns. Google competitors Snap Inc <SNAP.N> and Microsoft Corp <MSFT.O> also reported third quarter revenue ahead of expectations in recent days.
Google’s namesake search engine and YouTube video service are gateways to the internet for billions of people and have become more essential as they transact and entertain online to avoid the virus. Advertisers have turned to Google’s ad system to let shoppers know about deals and adjusted service offerings as the economy chugs along again.
Alphabet’s third quarter revenue growth reflected a bump in spending across each of its key ads businesses, including search, YouTube and partner properties.
EMarketer principal analyst Nicole Perrin said YouTube’s year-over-year sales growth, which was 32% compared with about 6% in the second quarter, pointed to “advertisers’ continued desire for video inventory, the return of brand spending, and notable increases in political ad spending” amid the U.S. presidential election.
Google’s cloud business was about flat with the second quarter, as were the company’s sales of apps, hardware and content subscriptions.
In recent months, Google had aimed to stoke advertising by not charging merchants for some promotional space and issuing grants to help other businesses buy ads. The efforts followed the company’s first sales decline compared with a year-earlier period in the second quarter, since going public in 2004.
But the dominance of Google services has become a liability for the company too. The U.S. government last week sued the company for operating a search monopoly and stifling competition. Other regulators in the United States and elsewhere have ongoing investigations into similar allegations.
The various cases could lead to Google having to divest some of its ad business in the coming years, though financial analysts doubt it will happen.
Google’s ad business accounted for 80% of Alphabet’s $46.2 billion in revenue in the third quarter. Analysts had expected $42.9 billion in revenue, or 5.9% growth from a year ago.
Alphabet’s profit was $11.2 billion, or $16.40 per share, compared with the average estimate of $7.698 billion, or $11.18 per share, among analysts tracked by Refinitiv.
Google competitors Facebook Inc <FB.O>, Amazon.com Inc <AMZN.O> and Twitter Inc <TWTR.N> also released financial results on Thursday that were above expectations, showing how internet companies have fared well through the pandemic. Facebook shares on Thursday were up 30% this year, Amazon 71% and Twitter 51%.
Alphabet’s total costs and expenses rose 12% from a year ago to $35 billion in the third quarter, compared with a 7% jump a quarter ago.
Capital expenditures dropped 20% to $5.4 billion, compared with a 12% drop last quarter.
(Reporting by Paresh Dave and Munsif Vengattil; Editing by Maju Samuel and Tom Brown)
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