Economy

How YouTube and mobile search drove revenue for Google’s parent company

Alphabet’s fourth-quarter earnings show YouTube and Google’s mobile search remain the company’s primary growth drivers.

Letters spell the word 'Alphabet' as they are seen on a computer screen with a Google search page in this photo illustration taken in Paris in 2015.
Pascal Rossignol/Reuters/File
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Google’s parent company, Alphabet, reported $26.06 billion in total revenue in 2016, a 22 percent increase over 2015’s revenue of $21.33 billion, with their mobile search engine and YouTube as the primary revenue-driving subsidiaries of the online giant. 

“Our growth in the fourth quarter was exceptional – with revenues up 22% year on year and 24% on a constant currency basis. This performance was led by mobile search and YouTube," Alphabet CFO Ruth Porat said in a statement, according to Forbes.

December rounded out the sixth straight quarter in which Google’s mobile search remained the primary growth factor for the tech behemoth as ad revenue continues transitioning from traditional television spots to digital media.

According to their fourth-quarter earnings transcript, the shift to mobile made mobile search one of Alphabet’s strongest overall growth areas. 

But while mobile search engine helped maintain strong revenue growth, the ever-changing nature of the industry contributed to below-estimated earnings for Alphabet’s year-end report.

Although revenue did indeed increase, earnings per share came in at $9.36 per share, missing the projected per share price of $9.67 by 41 cents.

Much of that discrepancy can be explained by the way Alphabet capitalizes on the growing elements of its business to offset costs for its developing departments.

"I think investors will have to come to terms with the fact that the Google segment margins will contract for several more quarters because they are pursuing growth areas,” said Aegis Capital internet analyst Victor Anthony to CNBC, continuing “YouTube is growing like weeds for them and they're investing against that.”

But the difference between posted earnings versus projected ones also reflects developments within web-based advertising industry as a whole. While total aggregate paid clicks increased 36 percent year-to-year and 20 percent from 2016’s third to fourth-quarter, cost-per-click (or the amount Google can charge for its ads) was down 15 percent from 2015.

"The core of Alphabet's business is still about both Google's search and YouTube's revenues," explained Forrester analyst Thomas Husson, according to CNBC. "The majority of these revenues derive from mobile, and the lower cost-per-click here should be compensated by a higher volume. I'd argue that the stability of Google's revenue in the next two to three years will depend on their ability to maintain the growth of mobile revenues.”

Thus as mobile advertising becomes more cost efficient, the profit margins may shift, however the dramatic increase in paid clicks reflects the overall growth for Alphabet.

That growth is not anticipated to falter in the near future. According to Business Insider, mobile advertising is poised to become the primary destination for digital advertising investment as the amount of time spent on phones and tablets continues increasing.

As the Business Insider report states that total US digital advertising revenue should reach a projected $100 billion by 2021, much of that will be geared specifically towards mobile platforms.

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