Alphabet’s sales growth surges, and so does its spending

Google’s parent company, Alphabet Inc., posted the strongest sales growth in almost four years last quarter, indicating that marketers kept flocking to its services even as lawmakers scrutinized how internet companies harness user data to sell ads.

Costs also surged as the company bought real estate and invested in new opportunities such as artificial intelligence, cloud computing, consumer devices and a voice-controlled digital assistant.

Chief Financial Officer Ruth Porat said demand for mobile search ads and a strong performance by the YouTube video service helped drive revenue growth. Google’s business of selling targeted ads on other sites across the web also contributed, Porat said on a conference call with analysts.

“We have a clear set of exciting opportunities ahead, and our strong growth enables us to invest in them with confidence,” the executive said.

First-quarter sales came in at $24.9 billion, excluding payments to partners that distribute Google services and ads. That was up 24% from the same quarter last year, and it beat analysts’ forecasts, according to data compiled by Bloomberg. Alphabet shares rose less than 1% in after-hours trading Monday.

So far, Google has shrugged off a privacy backlash set off by disclosures about lapses in Facebook Inc.’s data-collection practices. Google is the world’s largest digital-ad provider, a business that relies on targeted messages based on users’ online information and behavior. Although increased concern about privacy and new regulation may crimp Google’s ad business at some point, the company’s broad reach, vast resources and dominant market share mean smaller rivals may be hit harder by such issues.

Alphabet gave investors several new metrics this quarter. It disclosed more details on its massive investments in private companies such as Uber for the first time. The Mountain View, Calif., company reported a $3-billion gain on equity securities in the first quarter. That boosted earnings by $3.40 a share. Excluding those gains, Alphabet would have made a profit of $9.93 per share.

Alphabet capital spending almost tripled to $7.7 billion. That reflected a large real-estate investment and investments in cloud, hardware and the Google Assistant. The higher spending shaved operating profit margins to 22%, down from 27% a year earlier.

Porat told analysts the spending was “almost equally split” between real estate and the computing power and networking needed to support internal operations and the cloud business, which rents capacity to other companies. Google is building new data centers and investing in undersea cables to connect them with customers, as well as the latest machines for its artificial intelligence work.

Another brake on earnings: Google payouts to distribution partners, known as Traffic Acquisition Costs, which jumped 36% to $6.3 billion. Alphabet executives said last quarter that growth in those costs would slow after the first quarter.

UPDATES:

2:40 p.m.: This article was updated throughout with additional details.

This article was originally published at 2:10 p.m.