Google, now Alphabet, spells success with mobile, YouTube
Google is known for driverless cars, but when it comes to the tech giant's immediate future, all signs point to mobile ads and its massive video site. Its latest earnings top estimates.
Google, reporting its first earnings as the new holding company Alphabet, said it owed its profit and sales success last quarter to having six products with more than a billion users apiece.
They are search, the mobile operating system Android, the Web browser Chrome, maps, the marketplace Play and YouTube.
But Google executives on Thursday specifically called out YouTube.
The Google-owned video giant has become synonymous with online video. Every month, more than a billion people, or one of every seven on the planet, visit the site to watch movie trailers, get makeup tips or see cute animals do something adorable.
That appetite for cat videos does more than satisfy our collective dopamine receptors; it's also good for Google.
So much so that the Mountain View, California, company has been expanding YouTube's offerings to get you to spend even more time on the site. On Wednesday, Google announced YouTube Red, a subscription version of the service that for $10 a month nixes the ads and gives you access to original shows and movies from top YouTube talent. In August, Google launched YouTube Gaming, a hub dedicated to video game-related content.
"The shift to video is a profound medium shift, especially in the context of mobile," Google CEO Sundar Pichai said on a conference call. He said the video site has had "amazing momentum," especially on smartphones and tablets.
The result is an ever-sprawling video powerhouse that in many ways points to the future of Google. In July, Google CFO Ruth Porat said videos kept people watching 60 percent longer than they did a year ago. On smartphones and tablets -- the preferred places for advertisers, aka Google's lifeblood -- the average watch time is 40 minutes. That's double what it was a year ago, Porat said.
On Thursday, announcing results for the quarter ended September 30, Google said it beat Wall Street expectations for sales and profit, thanks to "substantial growth" in mobile search sales. One of the biggest contributors: YouTube.
Third-quarter sales were $18.67 billion, Google/Alphabet said in a statement. Profit, after adjustments for stock-based compensation and other items, was $7.35 a share. Analysts had estimated $18.53 billion in revenue and earnings of $7.21 per share.
Investors are happy. At 3:30 p.m. PT, Alphabet's stock jumped more than 11 percent in after-hours trading to more than $725. The company also said it will repurchase $5 billion in shares starting in the fourth quarter.
Earlier this month, Google restructured itself under a new holding company named Alphabet, part of an effort to make it easier for each unit to develop new projects, faster. On Thursday, Alphabet said it will keep reporting financial results for Google's business -- which includes YouTube, search and maps -- as a single group. Other businesses, including its X research lab and device maker Nest, will be reported as a combined group known as "Other Bets."
Still, even with the company's outsize ambitions, it all comes back to the tiny video startup Google acquired in 2006 for $1.65 billion.
It doesn't look like Google will slow its expansion of YouTube anytime soon. The site will be a key part of Google's virtual-reality efforts. Last year, the company unveiled Google Cardboard, a no-frills kit made of, well, cardboard that turns your smartphone into a VR headset. In May, the company said people would be able to directly watch VR videos on Cardboard through YouTube. All you will need to do is choose the VR function from the YouTube smartphone app.
Google can use YouTube as a place to experiment with video, like trying to make it more interactive or immersive, said Brian Blau, an analyst at Gartner.
"How can Google reinvent video over time?" he said. "That is going to be really powerful for YouTube going forward."
In the meantime, what are people watching? YouTube lists the top videos of the moment here. Unsurprisingly, No. 1 is the new "Star Wars: The Force Awakens" trailer, which premiered Monday night.
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Microsoft's focus on Windows 10 is starting to pay off
CEO Satya Nadella is relying on the latest version of Windows, and its ability to connect every device to the cloud, to recapture the hearts, minds and wallets of consumers everywhere. His strategy might be working.
Satya Nadella wants Microsoft to touch just about anything you touch.
It's one heck of an ambitious plan, tapping into our impatience when the device we're holding doesn't give us what we want, when we want it.
Yet Microsoft's CEO has assembled a strategy and a string of new products, from smartphones and tablets to games, that could actually pull it off. Everything hinges on Windows 10, which runs across computers, tablets, smartphones and the Xbox game console.
With Windows 10, developers can write universal apps that work on any device. That could help the world's largest software company build a compelling app repository, like Google's Play or Apple's App Store. The new Surface Pro 4 taps into businesses' and consumers' growing appetite for high-end hybrids that can serve as a laptop and a tablet. That could help Microsoft gain traction in corporations, where Apple's Mac computers do well. And premium phones could finally give Microsoft the cred it needs to hold its own against Apple's iPhones and Samsung's Galaxy S devices.
"Nadella knows you never have a second chance to make a good impression," said Daniel Ives, an analyst with investment firm FBR & Co. "He has to make developers, consumers and companies want to buy and use Windows products, and he's doing that through a unified platform. There are no delusions of grandeur. They have to start small and dream big."
Think of it as a kind of virtuous cycle: The more devices that rely on the new operating system, the more developers will write apps for it, which in turn will attract more customers. For his goal to work, though, Microsoft needs to quickly get the latest software into as many devices as it can, even if it means taking a short-term hit on revenue. Which is why the company offered Windows 10 free to most current users. Earlier this month, Microsoft said more than 110 million people had installed the software in the first 10 weeks after its release at the end of July.
It looks as if Nadella's strategy could work.
The company on Thursday reported a profit, excluding severance and acquisition costs, of 67 cents a share on $21.7 billion in revenue in its first fiscal quarter of 2016, which ended September 30. That sales figure includes deferred revenue from subscription fees for cloud-based products like Office 365 and Azure. Cloud-related revenue across all product segments lifted the results to beat Wall Street's expectations. On average, analysts polled by Reuters estimated a profit of 59 cents a share on $21.03 billion in revenue.
"We are making strong progress...by delivering innovation people love," Nadella said in a statement.
This is also the first time Microsoft has divided financial results into three buckets. "Productivity and Business Processes" includes its business suites such as Office and Office 365. The "Intelligent Cloud" segment focuses on corporate software, such as its Windows Server. All eyes may be on its "More Personal Computing" group, which contains Windows 10 licensing, mobile devices, the Xbox gaming console and advertising revenue from search.
Revenue in that group fell 17 percent, brought down primarily by a change in Microsoft's phone strategy. The company in the previous quarter wrote-down $8.4 billion in acquisition and restructuring costs related to its failed acquisition of Nokia's phone business.
On the plus side, revenue from search advertising excluding traffic acquisition costs grew 29 percent, while the number of monthly users actively using the Xbox increased 28 percent, to 39 million.
Investors apparently liked what they heard, sending shares up more than 8 percent in after-hours trading.
Separately, Microsoft laid off about 1,000 employees, or less than 1 percent of its global workforce.
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