Google’s parent company Alphabet reported $26.1 billion in total revenue, up 22% year over year (YoY) and 3% above consensus estimate of $25.2 billion.
For the sixth straight quarter, mobile search was the main driver of growth for the company, reflecting Google’s dominance in advertising.
Alphabet’s revenue is broken into two primary segments: Google Inc., and Other Bets. Here’s how they did:
- Google Inc., the company’s core business, had $25.8 billion in revenue, up 22% YoY. This includes revenue from advertising, Android, Chrome, Maps, YouTube, Google Play, Google Cloud, and Google’s portfolio of hardware products.
- Other Bets, which includes Nest, Verily, and Fiber, posted revenue of $262 million, compared with $150 million a year earlier, a 75% increase.
Mobile search and YouTube were the main drivers of Google’s strong performance, according to Alphabet CFO Ruth Porat. YouTube revenue is growing at a significant rate driven by video advertising, and the company is also seeing decent growth in desktop and tablet advertising. Strong performance in programmatic and at AdMob also drove revenue growth at Google’s third-party network sites.
Core Google “other revenues” spiked in Q4. Other revenue (not to be confused with “other bets” revenue) includes revenue from Google Play, Google Cloud and hardware. The 62% YoY growth rate in Q4 2016 was a sharp acceleration from Q3’s 39% YoY growth, which the company attributed to strong growth across the board in Play, Cloud and hardware. As a reminder, Q4 is the first quarter that includes sales of Pixel phones and Google Home, which likely contributed to the strength.
Google ads are also becoming more cost efficient. Cost-per-click, or the amount that Google charges for its ads, was down 15% YoY and down 9% quarter on quarter (QoQ), while paid clicks, which is the amount of times people click those ads, were up 36% YoY and 20% QoQ. This latter figure drives the bulk of Google’s revenue.
Consumers continue to increase their time spent consuming digital media, while advertisers continue to increase their ad budgets into digital channels.
The influx is not expected to let up in the near future. The US digital advertising industry will continue to experience remarkable growth through 2021 to reach nearly $100 billion in annual revenue, driven primarily by the sustained migration of ad dollars from traditional TV to digital video and the continued increase of social spending.
Overall, the strong growth of the US digital ad market can largely be attributed to increased time spent by consumers on digital media and brands’ increased comfort with allocating budgets to digital formats, particularly on digital video. In a recent 2016 survey of almost 400 US ad agencies and marketers, the IAB found that two-thirds of respondents plan on increasing spending on digital video in the next year.
Moreover, mobile will become the top destination for digital ad spending as advertisers continue to attempt to resolve the disconnect between the rapid growth in time spent on phones and tablets and the relatively small share of ad budgets that are allocated to such platforms — known as the mobile opportunity gap. In fact, mobile is set to eclipse desktop ad spend by 2018.
Dylan Mortensen, senior research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on U.S. digital media ad revenue that forecasts revenue trends over the next five years and outlines the key growth drivers for overall digital ad revenue in the U.S.
Here are some key points from the report:
- US digital ad revenue is expected to reach nearly $100 billion by 2021, according to BI Intelligence estimates. This represents compound annual growth of 8% from the $68.9 billion expected in 2016.
- Mobile is positioned to become the top destination for digital ad spending as advertisers continue to attempt to close the “mobile opportunity gap.”
- Digital video advertising will grow faster than any other segment over the next five years, as consumers shift time spent online to phones and tablets. Revenue in this category is forecast to rise from $8.5 billion in 2016 to $23 billion in 2021.
- Social advertising in all formats is gaining traction and will be among the key drivers of digital ad growth in the next five years. Social ad revenue is poised to climb to $30.8 billion by 2021, up from $15.5 billion this year.
- Artificial intelligence, augmented and virtual reality, and sponsored content will help propel further digital ad growth in the next decade.
In full, the report:
- Forecasts US digital ad revenue through 2021.
- Highlights the rising popularity of digital media with consumers and brands.
- Explores why digital video advertising growth will exceed all other formats over the next five years.
- Outlines emerging technologies that will help propel ad growth in the next decade.
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