Thanks to Google, Alphabet Shrugs Off Bad News With Big Quarter

Posted October 25, 2018 8:08 p.m. EDT

SAN FRANCISCO — The headlines swirling around Alphabet, the parent company of Google, are not positive: European regulators are cracking down on its business practices, politicians are expressing concern about political bias, and there are growing fears about how it is pushing the boundaries on user privacy.

But those clouds have done little to darken Alphabet’s earnings — a testament to the enduring strength of Google’s core search business. In 2018, Google is expected to capture about 60 percent of global search advertising spending, according to research firm eMarketer.

On Thursday, Alphabet reported a net profit of $9.19 billion in the third quarter, up 37 percent from a year earlier. Quarterly revenue was $33.74 billion, an increase of 21 percent but slightly lower than analysts expected, pushing the company’s stock price down about 5 percent in after-hours trading.

Alphabet’s profits, however, exceeded analysts’ estimates, reflecting a lower tax rate that it attributed to the effect of tax cuts passed in the United States in 2017. Alphabet’s quarterly tax rate was 9 percent versus 16 percent a year earlier.

The company appeared to be trying to demonstrate that those tax cuts are benefiting U.S. workers. Google said 80 percent of its capital spending during the third quarter was used in the United States. Alphabet said it had hired 9,000 employees in the United States this year, raising its total to 94,372 as of September, an increase of more than 16,000 from a year earlier.

In a conference call with analysts, Google CEO Sundar Pichai said it was still too early to determine the potential effect of new policies that the company was putting in place in Europe.

The European Union fined Google $5.1 billion in July for abusing its market dominance in smartphone software. Last week, the company said it would start charging handset manufacturers a licensing fee to install popular applications such as Gmail and Google Maps for phones running Android in the European Union.

In a sign of Google’s online dominance, Alphabet said Google Drive — its suite of productivity software — was now its eighth product to have more than 1 billion monthly active users. The others include YouTube, Google search and Gmail.

Alphabet said it continued to see an increase in traffic acquisition costs — the fees Google pays companies like Apple to ensure that its search engine is the default option when people open a browser on the iPhone. Google said it had paid out $6.58 billion in such costs, compared with $5.5 billion in the year-earlier period.

Alphabet also said it has logged a $1.4 billion gain on equity investments made by the company’s venture capital arms.