Alphabet's third quarter results came before the Australian Competition and Consumer Commission said it was taking Google to the Australian Federal Court for breaching consumer law.

By Ian Horswill

Posted on October 29, 2019

Google’s parent company Alphabet made US$7 billion in three months, with strong growth in its online advertising.

Alphabet’s third quarter results missed earnings per share expectations and were down from US$9.1 billion a year ago.

The result came before the Australian Competition and Consumer Commission (ACCC) said it was taking Google to the Australian Federal Court for breaching consumer law. The ACCC alleges Google has been misleading consumers about the personal location data it collects, keeps and uses. The action centres on protecting the rights of consumers who set up a Google account and accessed their account settings through their Android mobile phones and tablets. The ACCC said Google’s on-screen advice meant consumers were unaware two account settings — one labelled Location History and another labelled Web and App Activity — had to be switched off to prevent personal data from being collected.

Alphabet’s third quarter results came shortly after it was reported that Google is considering buying Fitbit, the wearable technology company, which would give the search engine giant part of the booming market for fitness trackers and smartwatches.

Alphabet attributed the fall in profits due to aggressive spending on marketing and Google’s cloud computing business, The Times reported.

Californian offices of Alphabet subsidiary Google.

Revenue rose by 20% to US$40.5 billion, from US$33.7 billion a year previously. The results were released after the closing bell on Wall Street, but its shares fell 3% in after-hours trading to $1,251.

“I am extremely pleased with the progress we made across the board in the third quarter, from our recent advancements in search and quantum computing to our strong revenue growth driven by mobile search, YouTube and Cloud,” said Sundar Pichai, the 47-year-old Google CEO.

Advertising revenue from Google, the business unit of Alphabet that contains its search engine, as well as YouTube, Google Maps, the Chrome web browser and the Gmail email platform, rose to US$33.9 billion from US$28.9 billion a year earlier. However, expenses rose by 25% to US$31.3 billion, while capital spending was up by 27% to US$6.7 billion.

Pichai said that half of advertisers’ search spend is now from automated bidding.

Most of the expenditure was directed towards cloud computing, or internet-based storage, management and processing of data. Alphabet is hoping that this will prove a key source of revenue growth alongside its advertising. Google is the third largest company in the market and has been trying to improve on its position by building more data centres, hiring more sales people and buying more equipment.

Sales at Google’s “Other Revenue” section, which includes cloud and consumer hardware, were US$6.4 billion for the quarter, up from US$4.6 billion a year earlier.

Alphabet, which Google created as its parent company in 2015, is valued at nearly US$877 billion and is the world’s fourth largest public company, after Microsoft, Apple and Amazon. The bulk of its profits come from online advertising through the Google search engine, YouTube and other platforms. The business also has interests in the Android mobile operating system for smartphones, its digital voice assistant devices and self-driving cars.

Analysts said that reports of Alphabet’s planned purchase of Fitbit could provide lucrative health-related data for Google. Such a deal also could put Alphabet on a closer footing with Apple, which has a clear market lead in wearable technology.

Leo Gebbie, a senior analyst at CSS Insight, a technology-focused analytics firm, said: “Fitbit has an exceptionally strong brand in the wearables space, with a large engaged user base and valuable user data. This has huge appeal to a data-driven business like Google. This indicates it is serious about the segment.”

Shares in Fitbit shot up 31% to US$5.64 after news of Google’s interest emerged, valuing it at US$1.4 billion.

Alphabet added another 6,450 new employees in the third quarter.