Alphabet Inc, the parent company of Google, has experienced a resurgence in sales growth during the third quarter of 2020. The rebound can be attributed to businesses resuming their advertising efforts with Google, the largest supplier of online ads. In fact, Google’s ad business accounted for a staggering 80% of Alphabet’s $46.2 billion in revenue during this period. As a result, Alphabet’s shares rose by 7.3% to $1,556.88 after the regular trading session.

The return to sales growth was in line with expectations on Wall Street, as Alphabet had previously announced in July that advertiser spending was slowly recovering following a significant decline caused by lockdowns in March. Other tech giants such as Snap Inc and Microsoft Corp. also reported third-quarter revenues that exceeded expectations.

Google’s search engine and YouTube have become essential gateways to the internet for billions of individuals, particularly amid the COVID-19 pandemic. With people increasingly conducting transactions and seeking entertainment online to avoid the virus, advertisers have turned to Google’s ad system to reach customers and inform them about deals and adjusted service offerings. In response to the challenging times, Google has stopped charging merchants for certain promotional space and has provided grants to help other businesses purchase ads.

These efforts were a response to Google’s first-ever sales decline in the second quarter of 2020, compared to the same period the previous year. However, the dominance of Google’s services has raised concerns, leading to the recent US government lawsuit against the company for alleged search monopoly abuse and anti-competitive practices. Regulators in the US and other countries are also conducting similar investigations.

Despite these regulatory challenges, financial analysts are skeptical that Google will have to divest some of its ad business in the future. This skepticism is due to the fact that Google’s ad business accounted for a significant portion of Alphabet’s revenue in the third quarter, generating $46.2 billion. This exceeded analysts’ expectations of $42.9 billion, representing a 5.9% growth compared to the previous year. Alphabet’s profit for the quarter was $11.2 billion, or $16.40 per share, surpassing the average estimate of $7.698 billion, or $11.18 per share, given by analysts tracked by Refinitiv.

On the same day as Alphabet’s results, competitors Facebook Inc, Amazon.com Inc, and Twitter Inc also released their financial reports, which surpassed expectations. This underscores how internet companies have thrived amidst the pandemic. In 2020 alone, Facebook’s shares rose by 30%, Amazon’s by 71%, and Twitter’s by 51%.

In terms of expenses, Alphabet witnessed a 12% increase in total costs and expenses compared to the same period the previous year, amounting to $35 billion in the third quarter. This is higher than the 7% increase seen in the previous quarter. However, capital expenditures dropped by 20% to $5.4 billion, in contrast to a 12% decrease in the previous quarter.

Overall, Alphabet’s return to sales growth in the third quarter is an encouraging indication of the company’s recovery from the impact of the pandemic on its advertising sector. Despite ongoing regulatory challenges, Google’s ad business remains a dominant player in the industry and continues to contribute significantly to Alphabet’s revenue.

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Investor Relations – Alphabet Inc