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Google parent Alphabet reports soaring ad revenue, despite YouTube backlash

Google headquarters in Mountain View, Calif. Google parent Alphabet reports earnings Thursday, Feb. 1, 2018. (AP Photo/Marcio Jose Sanchez, File)
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Google's ad business continued to soar in the fourth quarter, weathering a crisis of trust in its growing YouTube video platform.

Google parent company Alphabet's operating profits grew by 15 percent, or about $7.7 billion. Revenue climbed to an all-time high of $32 billion from $26 billion last year, beating analyst estimates. But Alphabet's earnings per share came in under expectations, at $9.70, and the tech giant took an $11 billion tax provision, sending its stock down in after-market trading.

Ruth Porat, chief financial officer of Alphabet, said mobile search led Alphabet’s strong growth. The company also enjoyed boosts from desktop search and YouTube, she said. Revenue from Google's ad business grew by 21 percent from last year and accounts for 84 percent of Alphabet's total revenue. Alphabet's expansion beyond Internet search is beginning to pay off: its cloud platform, which competes with Amazon and Microsoft, now generates $1 billion in revenue per quarter.

But tech suddenly appears less invincible to storms that could rock the industry. Google, Facebook and Apple have all faced scrutiny in recent months of their power and influence on society.

At Google, YouTube has borne the brunt of the backlash — from advertisers, content creators, parents and users who say that the site fails to effectively enforce its rules banning disturbing and offensive content, which is consumed by millions, sometimes without human review.

Google chief executive Sundar Pichai signaled that YouTube is responding to the outcry. "In addition to the significant work we are doing to protect users and stop abuse on the platform, just a few weeks ago we announced changes to advertising on YouTube." Those changes include stricter criteria for what types of videos can receive ad dollars, and more manual reviews of content. He defended YouTube's popularity, saying that 1.6 billion people watch videos on it every month.

Google's recent YouTube troubles have not loosened its grip on online advertising. According to eMarketer, Google is expected to command 42 percent of U.S. market share for digital ads this year; Facebook, its closest competitor, is expected to claim 23 percent.

Analysts have also pointed to Alphabet's strengths beyond advertising. In a note to investors earlier this month, Eric Sheridan, an analyst with UBS, said that the company is well positioned for developments in key areas of tech, including mobile, machine learning and cloud computing.

Risks to Google's bottom line may come in the form of increased regulation in Europe and in Washington. RBC Capital Markets, in a research note earlier this week, said leading Internet platforms appear under a rising threat of government intervention, citing a massive European Union antitrust fine against Google, a sweeping new data privacy law that will take effect there in May, and the U.S. government's investigation into foreign interference in the 2016 presidential election.

Last summer, the European Union's antitrust chief hit Google with a record $2.7 billion fine for illegally steering users toward its comparison shopping site — the largest fine the E.U. has ever levied against a company for abusing its dominant market position. Pichai told investors on the call that Google has long had "constructive conversations" with the E.U. and is "understanding their concerns and responding with thoughtful changes."