Jessica Goodfellow
Oct 30, 2020

Alphabet profit skyrockets as advertisers flock to YouTube

Brand advertising on YouTube rebounded in the third quarter of 2020, contributing to an enormous profit for its parent company.

Alphabet profit skyrockets as advertisers flock to YouTube

The parent company of Google has posted a mammoth 59% annual jump in net income to US$11.25 billion in the third-quarter of 2020, owing to sudden rebound in advertising revenue.

Alphabet posted total revenue of $46.17 billion in the three months ended September 30, or $38.01 billion after removing traffic-acquisition costs (payments to affiliates and online firms that direct traffic to Google). Google revenues were $46.02 billion, up 14% year-on-year. 'Other bets' revenues in the third quarter were $178 million, up 15%.

Regionally, Asia-Pacific revenues rose 24% year-on-year to $8.46 billion in the third quarter, representing the largest-growing region. This was followed by 15% growth in the US to $21.44 billion, 11% in EMEA to $13.92 billion, and 4% in 'Other Americas' to $2.37 billion.

The search giant's results were bolstered by an improvement in advertiser spend across all geographies and most verticals, as the world "accelerated its transition to online and digital services", Alphabet CEO Sundar Pichai said in a call with analysts Thursday (October 29). 

Advertising revenues rose 10% year-on-year to $37.1 billion following two straight quarters of year-on-year declines.

Alphabet Q3 2020 earnings snapshot

  • Revenue: $46.17 billion
  • Advertising revenue: $37.1 billion
  • Net income: $11.25 billion
  • Google Search and other advertising revenues: $26.3 billion
  • YouTube ad revenue: $5.04 billion
  • Google Cloud revenue: $3.44 billion

Chief financial officer Ruth Porat told analysts that advertiser spend "began to pick up in August", pushing Google Search and other advertising revenues up 6% year-on-year to $26.3 billion.

Meanwhile YouTube ad revenue rose a significant 32% to $5.04 billion, from $3.8 billion the prior year. This was driven by ongoing substantial growth in direct response, followed by a rebound in brand advertising, Porat said.

"We're pleased at the degree to which advertisers have reactivated their budgets in the third quarter," Porat told analysts. "They're reacting in part to evidence that consumers are showing strong demand across nearly all verticals [on YouTube]—everything from home and garden to computer to work-from-home. And then YouTube's strong watch time growth enables advertisers to reach audiences that they can't reach on TV...people who are going to YouTube to learn new topics and engage with fresh entertaining content."

Beyond advertising, YouTube grew its premium paid subscribers to "over 30 million", and over 35 million including those on free trials. YouTube TV now has more than 3 million paid subscribers.

Google Cloud sales rose 45% year-on-year to $3.44 billion.

Sales and marketing expenses declined by 8% year-on-year to $4.2 billion as a result of a planned reduction in advertising and promotional spend implemented in Q1.

Headcount grew by 16% year-on-year to 132,121, with the majority of new hires being engineers and product managers, Google said.

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