Updated:

Brushing back concerns about recent attacks on data-driven advertising, Alphabet Inc. today beat profit and revenue forecasts for its first quarter, aided partly by strength in other businesses such as cloud computing and hardware devices.

The parent company of Google LLC reported a net profit of $13.33 a share on a 26 percent rise in revenue, or 23 percent before currency shifts, to $24.8 billion. That revenue figure excludes the cost of acquiring traffic in the form of ad revenue sharing payments to partners. With those costs, total revenue was $31.1 billion.

However, the profit included the impact of a $3.03 billion or $3.40-a-share gain from “equity securities,” widely assumed to be the gain from the company’s investment in Uber Technologies Inc., that new accounting standards require to be included in profits. Without that gain, profit per share would have been $9.93 a share.

That easily beat analysts’ expectation of $9.28 on a 21 percent revenue rise, to $24.3 billion before traffic costs, according to a survey by FactSet Research Systems Inc.

Investors shrugged. In initial after-hours trading, shares were rising about 3 percent before dropping back after the report to about less than a 1 percent rise, which turned negative by a fraction after the earnings conference call ended at 2:30 p.m. PDT. They had fallen a third of a point, to $1,073.81 a share, in regular trading today. Update: As the Nasdaq fell 1.7 percent Tuesday, Alphabet’s shares declined 4.8 percent.

The concern about Google was strictly on the expense side, especially a 36 percent jump in traffic acquisition costs. Google Chief Financial Officer Ruth Porat attributed that on the earnings conference call to the greater cost of TAC, as it’s known, on mobile. More specifically, it’s likely that Google had to pay Apple Inc. much more to be the default search service on iPhones. “We believe that increases over the past year have shifted $1b+ from GOOG to AAPL,” Macquarie Capital (USA) Inc. analyst Ben Schachter said in a note to clients.

But capital spending also more than tripled, to $7.7 billion, partly because of the $2.4 billion purchase of the Chelsea Market building in New York City but also because of continuing investments in data center construction. “It seems highly likely that capex will be much higher this year vs. 2017, at minimum,” Brian Wieser, an analyst with Pivotal Research Group, wrote in a note to clients today.

As always, the company’s results turn on its advertising business, still the vast majority of revenues. Some investors have worried that recent issues with use of data by Facebook Inc. and now-former partners such as Cambridge Analytica might spill over onto Google and other data-driven ad companies.

But given how recently those issues have blown up, it was unlikely to have an impact on first-quarter results, and indeed it looks like they didn’t. Ad revenues rose 24 percent, to $26.6 billion.

“Recent negative headlines will not structurally change the online advertising model,” John Blackledge, an analyst with Cowen & Co., said in a recent note to clients.

Alphabet’s other two business units, confusingly named “Google other revenues” and “other bets,” are all the more confusing now that Google recently merged its Nest smart-home device unit into Google. So Nest now shows up in “other revenues,” which also includes the cloud business, hardware such as Pixel phones and Home smart speakers, Google Play apps and other content, and YouTube subscriptions. It’s no longer in “other bets,” Google’s so-called “moonshot” projects such as the self-driving car unit Waymo, Google Fiber internet service and Verily life sciences unit, which report first-quarte revenue of $150 million and an operating loss of $571 million.

What’s up in the cloud

“Other revenues” rose 36 percent, to $4.4 billion. Given that Google announced cloud revenues hit $1 billion a quarter last quarter, they likely were a significant contributing factor. “In Q1, we saw increasing momentum,” Google Chief Executive Officer Sundar Pichai (pictured) said on the earnings call.

Pichai said the unit is signing more and bigger deals, thanks to the popularity of its cloud machine learning services and its G Suite productivity software as a service. For G Suite, he added, “Growth is at an inflection point,” and is helping to drive more customers to the Google Cloud Platform overall.

He added that cloud platform growth overall has been “very strong” thanks to what he termed an advantage in data analytics and machine learning. “Security is becoming a big differentiator for us as well,” he said.

If Google’s cloud results were positive as Pichai implied, they would bode well for earnings reports coming up on Thursday from the two biggest cloud providers, Amazon.com Inc. and Microsoft Corp.

Even $1 billion in quarterly revenue likely still isn’t large enough to steal very much from its rivals, especially in the base-level computing, storage and networking services known as infrastructure as a service that enable companies to ditch their data centers in favor of renting out the services from cloud providers. So it’s more an indication of the cloud’s rapid takeover of traditional information technology such as hardware and software.

“I don’t see the pecking order of IaaS changing dramatically,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “I expect AWS to do well on the largest base, followed by Azure and then GCP.” In particular, though, he thinks Microsoft could report a “big upside surprise.”

Pichai also called out Google’s hardware efforts. He implied that it’s a long-term effort that requires Google to design new chips as well as set up sales and distribution efforts. “The opportunity is clearly there, and we are going to lean into it,” he said, but indicated the company needs to scale up the effort over a period of years.

Google’s headcount rose by 4,940 people from the fourth quarter, to 85,050, including 2,000 in January from the HTC mobile phone business it bought in September. More hiring is continuing rapidly for the cloud business, including technical and sales roles.

Photo: Robert Hof/SiliconANGLE