Google Q1 2018 Earnings: Glory Days, Early Days

April 25, 2018

Digital Marketing By Link Walls

Google’s parent company Alphabet released its Q1 results yesterday with continued strong growth of revenues. Overall revenues increased 26% versus last year (23% on a constant currency basis), which represents the search giant’s strongest quarterly growth rate in several years. And considering the size of the business, that’s no small feat.  

The earnings call increasingly sounded like a commercial for a financial advisor — lots of “We see opportunities to invest” and “We are investing with confidence.” Google is clearly executing well and in a position of strength.  

As we have previously discussed, Alphabet is simultaneously driving growth from its core business while placing “other bets” on technologies that represent the next potential wave(s) of growth. The core advertising business still represents the vast majority (86% this quarter) of business.

Some of the highlights from the quarter include:

  • Revenue increased 26% for the quarter (23% on a constant currency basis) and was $31.1 billion.
  • Net profit increased 73% to $9.4 billion — Some of this was a result of a change in accounting standards that added $3 billion to net profit from an increase in the value of securities, most notably its stake in Uber. A better measure is Free Cash Flow, which was $4.3 billion.
  • Paid clicks increased 55%, an acceleration from 43% last quarter.
  • Average cost per click (CPC) was down 18%; This number reversed the trend of the past two quarters.
  • Other revenues were up 36%, which includes Cloud, Play and hardware (Home, Pixel, etc.)
  • Capital expenditures more than tripled to $7.3 billion. Notably, $2.4 billion was the purchase of the Chelsea Market building in New York.
  • Its self driving car unit (Waymo) has completed 5 million miles of driving on city streets (1 million in the last quarter).  

From a core Search perspective, the growth in clicks of 55% is pretty remarkable. It shows that Google continues to drive significantly more paid clicks across all its properties. Google doesn’t release metrics on user growth but it certainly seems that the growth is coming from more clicks per user rather than user growth.

A contributing factor we see is organic search representing a smaller and smaller part of the search results page, so Google is trading organic clicks for paid ones.  We have seen that recently with Google testing new formats like double carousels for Product Listing Ads (PLAs) that really exaggerate just how pushed down organic results have become.

An additional area we have noticed at ChannelAdvisor is that PLAs are opening in a new tab — hovering over a product image like the one below shows an arrow indicating the click will open a new tab. In fact any click on the PLA ad unit will trigger a new tab on desktop  It’s possible that as users close these tabs they are sent back to their original carousel and end up clicking more ads.

The most significant news from Google this past quarter for brands and retailers was the introduction of Shopping Actions. During the earnings call, Sundar Pichai (Google’s CEO) only commented on the fact that it was “early days” and that feedback had been positive from retailers.  

For those not familiar, Shopping Actions is a new Google program that enables transactions across multiple Google properties — specifically Google Assistant (via the app and Home), Google Express and Google Search. A key distinction of this program is that it operates with more of a marketplace model than any previous Google offering. The pricing is not cost per click but rather the retailer pays a commission on the sale. The transaction happens on Google and leverages a Universal Cart, so you can think of this as very similar to a marketplace (which it essentially is).

As Google continues to make investments and push deeper into retail we will be keeping a close eye on Shopping Actions (as well as providing support to our customers for it) so stay tuned.

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