Alphabet, Google’s parent company, reported a 22 per cent surge in sales, despite fears that marketers were withdrawing advertising dollars from its YouTube video site because of worries about ads appearing next to extremist content.
The Silicon Valley company’s shares, up 21 per cent in the past year, rose 4 per cent to $928.30 in after-hours trading in New York.
Sundar Pichai, Google chief executive, said the company had taken “serious and significant steps” to address advertisers’ concerns, after several large brands suspended advertising on YouTube because ads were appearing next to videos featuring white nationalists and Isis.
He said that both investments in machine learning, to detect extremist content, and outreach to advertisers, including “thousands and thousands of calls and in-person meetings”, were making a difference.
“Advertisers have clearly noticed the improvements. The conversations we are having are very, very positive,” he said.
Google has come under pressure during the quarter as large advertisers have withdrawn their ads from YouTube. Brands from Verizon to Volkswagen, L’Oréal to Lloyds Banking Group and even the UK government said they were suspending buying ads on the Google-owned video platform. Some advertisers demanded discounts.
Moody’s, the investment service, said that the withdrawal of advertising dollars from YouTube was “credit negative” for Google, hitting financial performance and its reputation, but did not impact on its rating because the marketers were a very small percentage of Google customers and the boycott was not likely to last long.
The Silicon Valley company has come back with a plan to expand safeguards, broadening its definition of inappropriate content, adding additional controls for marketers and stopping ads from playing on channels with fewer than 10,000 views.
Norm Johnston, global chief strategy and digital officer at WPP’s Mindshare, an advertising agency, said that Google had managed to “calm the waters” with advertisers. Many had resumed spending on YouTube videos with stricter controls and different tactics.
But he said that the scandal had forced many companies, up to the chief marketing officer and in some cases chief executives, to question the quality of content overall on YouTube. Marketers could turn to rivals, such as Oath, the company about to be created from AOL and Yahoo, for better quality content, he said.
“I wouldn’t take the resumption as a sign of endless confidence in the platform,” he said.
“It is the typical user-generated content you often year about: people playing minecraft videos and funny little videos of animals doing strange things. I think most marketers, while they knew there was some of that going on, had made the assumption they were running ads against things that were a bit more professional.”
YouTube has become a significant driver of revenue growth for Google, as users watch more than a billion hours a day on the site. The company launched YouTube TV during the quarter, offering live TV in five cities in the US.
The owner of Google reported first-quarter sales of $24.8bn. Without the cost of acquiring traffic, revenue was $20bn, higher than the consensus forecast for $19.8bn. On a constant currency basis, sales increased 24 per cent.
Google’s UK revenues suffered from the weakness in the pound, rising just 5 per cent year on year, compared to 16 per cent on a constant currency basis.
Improved operating margins led to earnings per share of $7.73 in the quarter, beating the average analyst estimate of $7.40. Net income was $5.4bn, up 29 per cent from the same period the year before.
But the company is still investing heavily in data centres, acquiring content for YouTube and expanding its hardware business.
In the first quarter, Alphabet said that revenue from its “other bets”, the early-stage units such as Waymo, its self-driving car division, and Verily, its biotech company, rose by almost 50 per cent. But they remain a small contributor to the top line, at $244m in the quarter, and their losses widened to $855m.