Alphabet, the parent company of search engine and online advertising giant Google, has reported a dip in profits that saw its share price drop by 3% in after-hours trading yesterday. However, while investors may not have been overly enthused by the rise in spending on aggressive marketing and the company’s cloud computing unit, the slight disappointment was tempered by reports that Alphabet is lining up a huge bid for wearable health and fitness technology brand Fitbit. If the move does transpire, it will catapult Alphabet into the quickly growing market for fitness trackers and smart wearables.
It will be some time before there is any clarity on whether or not that deal might go ahead. But in the meanwhile, Alphabet announced a $7 billion profit, down from $9.1 billion a year ago, for the three months that concluded at the end of September. The drop in profits came despite a whopping 20% rise in revenue over the period to $40.5 billion from $33.7 billion in 2018. Strong growth in Google revenues, which cover paid ads served through the brand’s search engine as well as other products including YouTube, Google Maps and Gmail, saw revenues reach $33.9 billion – up from $28.9 billion a year ago.
However, profits were dented by a policy of aggressive spending on marketing and investment in the Google Cloud Platform – Google’s cloud computing unit that is trying to gain ground on market leaders Amazon and Microsoft. Expenses increased by 25% to $31.3 billion and capital spending grew by 27% to $6.7 billion. Capital spending was concentrated on improvements to Google’s cloud computing infrastructure, which offers clients online storage, management and processing. The company has been building new datacentres and upgrading the hardware in others. Google is currently the third largest provider in cloud computing by market share but is some way behind Amazon and Microsoft’s Azure in first and second places respectively. A bigger cloud computing sales team has also been invested in.
Google chief executive Sundar Pichai commented on the quarterly report, or more accurately, the company’s general progress, with:
“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.”
The company will be confident that the currently increased expense of investment in the cloud unit will pay off. Alphabet’s ‘Other Revenue’ unit that Google Cloud Platform contributes most revenue to, saw sales grow to $6.4 billion – a whole $2 billion and over 40%, up from last year’s $4.6 billion total.
If the Fitbit acquisition rumours prove to be accurate, it would mark one of the most significant buys in the company’s history. Fitbit would both represent a trove of valuable health data as well as provide Alphabet with a proven foothold in the market for consumer tech hardware – a space it has struggled to make inroads into in the past.
Commenting on the rumours, Leo Gebbie, a senior analyst at CSS Insight, a technology-focused analytics firm, stated:
“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.”
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