Business Essentials for Professionals


Alphabet Earning Beats Market Expectations Lifting Shares

Alphabet Earning Beats Market Expectations Lifting Shares
A big bottom line of Google parent Alphabet which comfortably beat market estimates saw its shares surging after the company reported good second quarter results.
The company reported adjusted earnings per share at $11.75 compared to market expectations of $9.59 while it reported revenues of $32.66 billion compared to a market estimate of $32.17 billion.
Within hours of the results being announced, there was a5 per cent increase in the share price and later dropped a little to notch a final increase of 3.2 per cent. On the overall, strong revenue growth was reported by Alphabet and the results refuted concerns about a significant impact because of the new privacy rules in Europe. Wall Street analysts were also impressed by the company spending less to drive traffic for its main search engine and ads.
The decision of the European Union to impose a record $5 billion fine on Google for anti competition policies linked to its Android phone software resulted in the parent company posting a non-adjusted EPS of $4.54, despite the good adjusted earnings.
In the second quarter of the year, the majority of the revenues of the company was accounted for by Google's advertising business which touched $28 billion in and noting a 23.9 percent increase year-over-year.
On the other hand, a 36.5 per cent year-on-year increase was noted for its "other revenues" category at $4.4 billion. This category includes its cloud services and hardware sales and this segment is a key one for investors seeking to gain a glimpse of the future of Google’s revenue apart from ads.
The cloud business had "great momentum," said CEO Sundar Pichai on the company's earnings call. He however did not give any new numbers for revenues form that business aside of what had been given by the company - $1 billion per quarter, in Q4 last year.
At $6.4 billion, 23 percent of its advertising revenues was the expenditure for driving traffic by Google. Such expenses include the amounts that the company spend on paying phone makers such as Apple, to use its services such as Google search. It has been years that warning had been issued by the company that there would be increase in its TAC expenditure because of the rise of mobile search which drives its growth. While, the TAC for Alphabet in the second quarter was higher year-on-year, the total expenditure as a percentage of the total advertising revenues generated came down slightly compared to 24 percent last quarter.
Porat said on the earnings call that "it is most instructive to focus on year-on-year changes" to TAC growth rate.
"TAC came in lower than expectations which is a clear positive takeaway from the quarter," GBH Insights analysts wrote in a note to clients following the earnings.
The operating expense for Alphabet was $10.9 billion, an increase of 24 percent year-over-year primarily because of increase in R&D expenses. The operating expenses excluded the impact of the European Union's fine.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc