Ad sales surge at Google parent Alphabet, but so do costs

SAN FRANCISCO: Strong growth in ad sales on Google search and YouTube were not enough to offset a surge in costs at parent Alphabet Inc that shrank the first-quarter operating margin, leaving shares flat after hours on Monday.

Alphabet got a boost from how it values investments in Uber Technologies Inc and other startups.

That accounting change and a one-time benefit cut its effective tax rate nearly in half.

Investors are uncertain about future profit at Alphabet as the company navigates the move to a phone-based computing world and invests in small, fast-growing initiatives from self-driving cars to selling hardware and cloud computing services.

The quarterly results did not clarify the outlook.

Alphabet´s operating margin of 22 percent, down from 27 percent a year ago, missed expectations because of the growth in expenses.

Alphabet is investing to keep pace with Amazon.com Inc and having to share more of its revenue with phone and browser makers, said James Cordwell, analyst at Atlantic Equities.

"The jump in profits is purely due to one-time items," he said. Longer-term capital expenditures nearly tripled to $7.3 billion in the first quarter from $2.5 billion a year ago.

Still, worldwide sales increased to $31.1 billion, above the average analysts´ estimate of $30.3 billion, according to Thomson Reuters I/B/E/S.

Those ad sales showed investors that there were no immediate signs that rising global privacy concerns had affected profits, even as concerns over Facebook Inc´s use of privacy cast some suspicion on Google.

Officials across the world seek to force changes in Google´s business practices, such as giving customers more control over their data.

"The strong economy has companies spending more on advertising," said analyst Ivan Feinseth from Tigress Financial Partners.

"Google continues to dominate both mobile and desktop search" and there will be "very little effect" from Facebook privacy data fallout, he said.