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Earnings Results: Google ad sales push Alphabet earnings to record, stock heads toward new high

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Google parent Alphabet Inc. rang up record profits for a third straight quarter during the pandemic, catapulting shares 5% toward a record stock high in after-hours trading Tuesday.

The search-engine behemoth 
GOOGL,
-0.82%

GOOG,
-0.84%

reported net income of $17.93 billion, or $26.29 a share in its fiscal first quarter, compared with net income of $6.84 billion, or $9.87 a share, in the year-ago quarter.

Revenue after removing traffic-acquisition costs improved to $45.6 billion from $33.7 billion in the year-ago period. Overall revenue soared 34% to $55.3 billion.

Analysts surveyed by FactSet had estimated net income of $15.76 a share, on ex-TAC revenue of $51.5 billion. Traffic-acquisition costs were estimated at $9.1 billion, which would give Alphabet revenue of $42.4 billion when extracted.

Equally significant, the company’s operating margin improved to 30% in the quarter, vs. 19% in the same quarter a year ago.

“Over the last year, people have turned to Google Search and many online services to stay informed, connected and entertained. We’ve continued our focus on delivering trusted services to help people around the world,” Alphabet Chief Executive Sundar Pichai said in a statement disclosing the results Tuesday.

The company’s board also authorized the repurchase of up to an additional $50 billion of its Class C capital stock.

Search was the big breadwinner, again, with $31.9 billion in sales, compared with $24.5 billion in the same quarter a year ago. YouTube ad sales jumped 49% year-over-year to $6 billion.

Google’s Cloud revenue improved 46% to $4 billion, though the division lags behind rivals Amazon.com Inc.
AMZN,
+0.25%

and Microsoft Corp.
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+0.16%
.

“We are seeing an acceleration in part to digital in consumer spending behavior” for advertising, Alphabet Chief Financial Officer Ruth Porat said in a conference call with analysts late Tuesday. Most of the new advertisers are small businesses forced to reach out to consumers because of the pandemic, the company said.

A surge in advertising also bodes well for Facebook Inc.
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+0.17%
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which reports its first-quarter results on Wednesday. Last week, Snap Inc. 
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+0.82%

reported a 66% hike in quarterly revenue on strong ad sales.

“More users are spending more time online, and advertisers are looking for more ways to extend their reach” via search, social media, and YouTube, JMP Securities analyst Ron Josey told MarketWatch. YouTube content was viewed, on average, more than 1 billion hours a day during the quarter.

Google’s latest strong quarter belies antitrust suits it faces from the Department of Justice and two groups of state attorneys general over its search business. More important, a growing number of developers are sharing stories they say illustrate Google’s bullying behavior.

On Monday, Roku Inc.
ROKU,
-2.16%

warned YouTube TV customers that Google’s internet pay-TV service could discontinue on the Roku platform soon “because Roku cannot accept Google’s unfair terms as we believe they could harm our users.“ Google, a Roku spokesperson told MarketWatch, “is attempting to use its YouTube monopoly position to force Roku into accepting predatory, anti-competitive and discriminatory terms” through its negotiations around the YouTube TV app.

A YouTube TV spokesperson called claims “baseless” and said that it has “made no requests to access user data or interfere with search results.”

Last week, Jared Sine, chief legal officer at Match Group Inc.
MTCH,
+3.48%
,
told a Senate subcommittee on competition policy, antitrust and consumer rights that Google called Match the night before his testimony became public to press why his testimony differed from Match’s comments in its latest earnings call. Sen. Richard Blumenthal, D-Conn., quickly jumped on the call as “potentially actionable.”

Wilson White, senior director of public policy and government relations at Google, categorized the call as “an honest question” and didn’t consider it a threat. “We would never threaten our partners,” he said, because they are the lifeblood of the Google Play app store.

Read more: Senate hearing on app stores puts Apple, Google under regulatory spotlight

The chorus of criticism is intensifying, antitrust lawyers contend, amid antitrust lawsuits against Google and Facebook Inc.
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as well as next week’s trial between Epic Games Inc. and Apple Inc.
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-0.24%

over the latter’s 15% to 30% commission fee for developers on the App Store.

Despite the regulatory flareups, Alphabet shares are up 31% so far this year, while the broader S&P 500 index 
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-0.02%

is up 11.5% in 2021.

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