Google Changing a Closely Watched Metric of Its Ads Business

(Bloomberg) -- Alphabet Inc. is changing a closely watched measure of Google's digital advertising business and adjusting how it accounts for some private stock holdings, a move that will make reported income more volatile.

The main difference is in how Google discloses the performance of its Network business, which runs ads on thousands of third-party websites. This will no longer be reported on a "cost-per-click" basis, or how many times the ads are clicked on. Instead, Google will report changes based on cost per impression -- the number of times the ads are viewed. In the fourth quarter of 2017, Google reported $5 billion in sales from network sites.

By using impressions, Google is providing a more-accurate reflection of its second-biggest business, after search, said Brian Wieser, an analyst at Pivotal Research Group. Most marketers already buy banner and video ads on websites based on impressions rather than cost-per-click. "CPC is a meaningless number," he said.

The company also said that unrealized gains and losses on non-marketable equity securities, such as investments in private companies, will be reported as part of income. The tech giant has backed many large closely held companies including Uber Technologies Inc., Lyft Inc., and Magic Leap.

As a result, the company said it expects "increased volatility" on its income statement.

Finally, Alphabet said it will begin to report sales from Nest, its connected-home device division, under Google rather than its catch-all Other Bets segment. Nest moved to become part of Google's hardware business in February.

Alphabet described the changes, which kick in for the first quarter, in a statement on Monday. The company is scheduled to report results April 23.

To contact the reporter on this story: Mark Bergen in San Francisco at mbergen10@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz

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