Google Q1 Earnings: Steady as She Grows

May 1, 2017

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Despite a decline in cost-per-click growth, Google reported strong first quarter results, driven by a steady increase in mobile and local search.  

Google’s parent company, Alphabet, reported the results late Thursday. Although concerns weighed on the results due to the controversy surrounding large brands pulling advertising from YouTube, the overall growth train of Google’s robust advertising business hasn’t slowed down.

Revenue increased 22% driven by growth in mobile search, YouTube and programmatic advertising. The level of consistency here is truly impressive: Google has posted at least 20% growth in its core advertising business each quarter for seven consecutive years (click to enlarge).  

Some of the quantitative highlights:

  • Revenue increased 22% to $24.8 billion (24% on a constant currency basis)
  • Net income increased 29% to $5.4 billion
  • Paid clicks increased 44%
  • Average CPC decreased 19%
  • Other Revenue which consists of Cloud, Google Play and Hardware increased 49%

Google continues to drive strong growth in the number of clicks it generates with this quarter representing the highest growth in over two years.

The challenge Google faces is in monetizing these clicks and the growth on mobile generally puts pressure on CPC’s as advertisers struggle with monetizing users at the same rate as on desktop.  This is pretty clear when you look at the overall trend in CPC, which declined 19% in Q1 (click to enlarge). 

Local Growth

One aspect highlighted by Alphabet CEO Sundar Pichai on the earnings call was the growth in local advertising. As consumers continue to find greater utility from their mobile phones it isn’t surprising that local shopping queries increased 45% YoY. Additionally, the number of retailers providing a local inventory feed to Google has doubled. This represents an area of advertising that should be prioritized given the challenges so many omni-channel retailers face in driving traffic to their stores.

Given the fragmentation of so many traditional media opportunities (print, TV, radio), the ability to be front and center when a consumer is searching for a related product is critical to success in 2017 and beyond.

AI Innovation

Google also highlighted several of the innovations being enabled as Google moves to being an “AI first” company. Google Assistant is the most visible of these to consumers and the nature of how consumers search using voice is rapidly evolving. A core benefit of voice search to advertisers will be the audience segmentation capabilities. The ability to deliver the right ad will increasingly depend on the advertiser’s ability to understand the context of the user.

For retailers who haven’t yet jumped on the RLSA bandwagon, now is the time to get moving.  Much like mobile once things hit it will be hard to catch up.

Facebook’s earnings will be released later this week, and we’ll see how it stacks up with Google’s in what has become a two-horse race for the future of digital advertising.