Trump tax breaks start paying off for Google

Google has unveiled the numbers for the first quarter of 2018, which also happens to be the first period of 11% corporation tax, with the search giant pocketing profits of $9.4 billion, up from $5.4 billion in 2017.

Revenues in the advertising continue to surge, with this quarter growing 26% year-on-year, though Google is showing it isn’t simply a one trick pony. Looking at the ‘Other Revenues’ segment, which includes cloud, Play and hardware, revenues were up 36% to $4.354 billion. Even without the search advertising, Google would be a business generating roughly $17.5 billion a year; that is monstrous.

“We delivered ongoing strong revenue growth, up 26% year-on-year and up 23% in constant currency,” said Ruth Porat, CFO of Alphabet, parent company of Google. “The sustained outstanding performance in sites revenues, in particular, reflects the combined benefits of innovation and secular growth, with mobile search again leading the way. Robust growth in network revenues was again led by our programmatic business. Ongoing substantial growth in other revenues, namely cloud, hardware and Play, continues to highlight the growing contribution of our non-ads opportunities.”

The additional cash from alternative revenues, as well as the tax breaks from President Trump’s ploy to lure technology cash back into the US come will be welcomed by executives as reform lurks on the horizon. The Cambridge Analytica scandal might have been focused on Facebook as it stands, but it won’t be too long before the likes of Google and Twitter feel the collateral damage.

Facebook CEO Mark Zuckerberg has already pointed towards competitors in the digital economy to deflect the unwanted attention and it won’t be too long before regulators on both sides of the Atlantic start to make changes in the data economy. Europe is already rolling out GDPR which will add additional complexities to the monetization of data, though Google CEO Sundar Pichai believes the firm won’t be affected that significantly.

“We started working on GDPR compliance over 18 months ago and have been very, very engaged on it. It’s really important, and we care about getting it right,” said Pichai, before going onto state. “It’s important to understand that most of our ad business is Search, where we rely on very limited information, essentially what is in the keywords to show a relevant ad or product.”

These rules were gaining momentum long before the ugly head of Cambridge Analytica burst into the tech headlines, perhaps demonstrating how much more enlightened European regulators are than US counterparts, but the scandal will lead to an investigation. This is an incident which rocked the technology world and there will be repercussions for any and every organization which makes money out of insight. This scandal hasn’t impacted the wider community just yet, but it is only a matter of time.

Whether this impacts Google’s activities in the smart speaker world remain to be seen. As it stands, Google is losing the battle for the living room, but this is not for a lack of effort. Expenses over this quarter were up 27% year-on-year, while headcount was up almost 5,000. Winning the battle in the living room takes the search advertising business to pastures new. Google will be on your laptop, smartphone and your speaker. It will be collecting advertising and referral revenues everywhere.

Pichai also noted that the speakers are being used for a wider range of uses, such as using voice commands to make phone calls or control other smart home products. Perhaps this demonstrates the normalization of the voice interface, which would be another very positive development for Google. Using your voice to control other products is just a couple of steps away from vocal purchases and payments. Once this aspect of the smart speaker is normalized, buying pizza or ordering groceries for example, some very interesting revenue opportunities awaken.

However, these developments could also be impacted to a reform in how data can be monetized. The question is whether regulators will aim to address what is in front of them, or have the foresight and imagination to tackle how data will be used in the future. Rule makers have shown themselves incapable of keeping up with developments in the technology space, but a broad investigation should (if there is a basic level of competence present) address future uses of personal information, such as the smart home. We seriously doubt this aspect of the industry will be addressed, priming the world for another major privacy and data protection scandal in a few years’ time.

Investors might be nervous about the future of the internet firms, but the data scandal has seemingly had little impact here to date. Next quarter will be a more accurate representation, but all things are rosy at Google right now.

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