The search giant's fourth quarter ad revenue grew nearly 22% as retailers increasingly bought up image-focused Product Listing Ads.

Google’s advertising revenue grew nearly 25% in 2017, a 7.2 percentage point acceleration from 17.8% growth in 2016, the company’s parent company, Alphabet Inc., reported Thursday. The fourth quarter, which is crucial to retailers’ bottom lines, contributed to those gains; the search giant reported that fourth quarter ad revenue grew nearly 22%.

Google aims to make it simple for consumers to shop and browse online. “As shoppers turned to their mobile phones this holiday shopping season, Google was central to helping them discover new brands, compare products and find the best deals,” said Google CEO Sundar Pichai, during a conference call with analysts. “We redesigned the mobile shopping experience on Google, bringing more product information to the forefront like reviews and ratings. We are also making the payments experience simpler, safer and more consistent. We brought our payments efforts together as a new Google Pay, which shoppers can use to pay online, in stores and across Google products like Chrome and the Play Store. Companies like Airbnb and Instacart are using Google Pay to speed up mobile checkout.”

Ads across Google-owned properties and its ad network were key drivers behind that growth. Paid clicks across Google’s sites and advertising network rose 438% in the fourth quarter compared with the same period a year ago.

On Google’s search engine, YouTube and other Google-owned sites, the number of paid clicks rose 48% year over year.

The average cost per click on a Google ad across all formats and venues fell 14% compared with the same period a year earlier. On Google sites alone, the cost per click fell 16% year over year, while the cost per click on Google Network Members’ websites decreased 4%.

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Google’s growth was bolstered by growing competition amid retailers and other advertisers buying Product Listing Ads, according to a new report released last week by digital marketing agency Merkle RKG. PLA spending grew 32% during the quarter, and Google text ad spending jumped 15%, the report found. And the cost per click for Google ads rose 4%, a four percentage point increase from the previous quarter when CPCs were flat. PLAs accounted for 53% of Google search ad clicks among U.S. advertisers, up from 48% a year earlier and the same percentage as the second quarter.

Google’s app promotion ads, which enable retailers to drive consumers to use their apps, also have “strong momentum” Pichai said.

And Google is increasingly focused on transforming YouTube, which has 1.5 billion monthly active users, into a more robust advertising platform for retailers by adding tools such as store visit measurement and location-based ad formats to drive online to offline commerce.

Alphabet is also looking beyond advertising to drive more growth, Pichai said. “We’ve been laying a foundation for the next decade as we pivot to an [artificial intelligence]-first company, powering the next generation of Google products like the Google Assistant. And we have been making substantial investments in our three biggest bets, cloud, YouTube and hardware. These bets have enormous potential and already they are showing real momentum and gaining traction.”

For the fourth quarter ended Dec. 31, Alphabet reported:

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  • Advertising revenue of $27.227 billion, up 21.6% from $22.399 billion a year earlier.
  • Google-owned sites, such as its search engine and YouTube, generated $22.237 billion in revenue, up 23.8% from $17.968 billion.
  • Net loss of $3.020 billion, which is due to a one-time transition tax on accumulated foreign subsidiary earnings and deferred tax impact from the U.S. Tax Cuts and Jobs Act, compared with a $5.333 billion increase. Excluding the impact of the tax bill, Google’s net income would be $6.837 billion.
  • Google’s traffic acquisition costs, which is what Google pays to websites that host Google ads, rose to $6.450 billion, up 33.0% from $4.848 billion.

For the full year, Alphabet reported:

  • Advertising revenue of $95.375 billion, up 24.9% from $76.383 billion a year earlier.
  • Google-owned sites, such as its search engine and YouTube, generated $77.788 billion in revenue, up 22.0% from $63.785 billion.
  • Net income of $12.482 billion, down 40.5% from $19.478 billion.
  • Google’s traffic acquisition costs, which is what Google pays to websites that host Google ads, rose to $21.670 billion, up 29.0% from $16.793 billion.
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