US dollars (2)

It just keeps giving. Amazon, Microsoft and Alphabet/Google don’t seem to be able to do anything wrong – not when it comes to making profits.

Alphabet has been under the cosh, following an advertising boycott after Alphabet algorithms placed ads, including ads for the Royal Navy, next to inappropriate videos on YouTube. Well, that hasn’t made much difference. In the latest quarter, profits jumped 29 per cent, hitting $5.4 billion, ad revenue was up 19 per cent, to $21.4 billion. Paid clicks jumped 44 per cent.

Total revenue rose to $24 billion, up 22 per cent.

But it wasn’t just the core part of the business that enjoyed such a remarkable growth spurt, ‘other revenues’ were up 50 per cent, rising to $3.1 billion. So that’s things like cloud services, Google Play, Pixel Home and Google Home.

Okay, for a company that is raking in money for paid clicks, ‘other revenues’ seem quite small. But only because the ad revenue is so huge – the fact is ‘other revenues’ have gone from nowhere, a few years ago, and if the 50 per cent annual increase can continue, then it won’t be long before this part of the business rivals paid clicks for importance.

Mind you, the so-called moon shots – Fiber and Nest, for example – saw losses mount, hitting $855 million. But even in this area, signs of promise are emerging. Revenues jumped from $164 million to $244 million.

Who knows how long the company can count on ad revenue bringing home the bacon – there are reasons to think that Alphabet won’t have things all its own way for much longer in this field, the rise of apps, for example, may threaten the scale of search related advertising. Consumers are fickle, they can change habits. But what the company is doing, is creating several more strings to its bow, and it’s a bow that could be set to fire many billion-dollar plated profit arrows for years to come.

Time was, when Amazon and Google only vaguely overlapped – not any more. They are rivals in the cloud, or rivals to develop AI, but even the core businesses overlap substantially. After-all when you drill down, what is the difference between paid per clicks ads, in which advertisers fund the ads through selling products being promoted, and selling a product on Amazon, in which the positioning on Amazon is funded by giving the tech company a slice of the revenue?

Amazon saw profits jump 40 per cent, okay at $724 million, they are small fry next to Alphabets’. But then sales leapt to $35.7 billion – up 23 per cent. Maybe the big difference between Amazon and Alphabet is that what we might call ‘other services’ are further along the development process. Revenue from Amazon Web Services alone rose to $3.7 billion.

Amazon is famous for re-investing revenue – it even eclipses Alphabet for the development of ambitious – somewhat out there – projects. The fact that despite this, profits are approaching a billion is impressive. The markets certainly thought so, and shares surged, from $902 a few days ago, to $919 at time of writing.

Amazon’s market cap is now $439 billion, compared with $610 billion for Alphabet. Amazon boss Jeff Bezos is now within $5 billion of taking Bill Gate’s crown as the world’s richest man.

In terms of market cap, Microsoft sits between the two companies, valued at $525 billion.

The news from Microsoft wasn’t quite so impressive. Sure, revenue from LinkedIn was close to $1 billion, but then the company paid $26 billion for the B2B social media tool last year, it has to develop LinkedIn much further to justify the price tag

Overall revenue was up 6 per cent, hitting $23.56 billion, but revenue from the computing unit fell. But Cloud Services and Office continue to perform well – cloud services saw revenue rise 15 per cent.

Net income rose to $4.8 billion.

Markets were a little disappointed, however, as they had expected a slightly better performance.

What is impressive about Microsoft is the way it has changed under the leadership of Satya Nadella. Before he took over in 2014, it felt as if the company was living off former glories – it seemed like it was on the cusp of going the way of Yahoo or Nokia.

But the company has re-invented itself – shifting upwards in the cloud.

Re-invention is hard. But Microsoft seems to have pulled off that trick twice now – the first occasion some 20 plus years ago when it moved from Dos to Windows. The migration to the cloud may yet prove to be just as successful a move.

Bear in mind, that when Apple first overtook Exxon Mobil to become the world’s largest company, back in 2011, it was valued at $341 billion. It is still the biggest, but Amazon, Microsoft and Alphabet (and Facebook, for that matter) now enjoy valuations that make the Apple of 2011 seem quite small.

The NASDAQ rose on the news, this time closing at 6,048. It was not so long ago, when headline writers were raving about the company passing 5,000, and then passing the dotcom high set in the year 2000.

When the NASDAQ soared in the late 1990s it was being supported by hype, and very little in the way of substance. But this time, there are hard numbers behind the rise in the index. Techs have at last realised exceeded the dreams of dotcom entrepreneurs from 17 years ago.