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Internet giant Alphabet, owner of Google reported better than expected second quarter earnings after the market Thursday. Alphabet approved a repurchase of up to an additional $25 billion. $GOOGL stock rose over 8% on the release.

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Alphabet Reported First Quarter Earnings After The Close Thursday

$14.21 Beat $11.30 EPS Forecast and $38.94B Revenue Beat $38.15 Billion Forecast

Earnings

Alphabet Inc. (GOOGL) reported second-quarter earnings Thursday after the closing bell with earnings per share of $14.21 per share, ex-items, vs. $11.30 per share expected, per Refinitiv survey of analysts and revenue of $38.94 billion, vs. $38.15 billion expected, per Refinitiv.

Traffic acquisition costs were $7.24 billion, vs. $7.27 billion, according to StreetAccount. Paid clicks on Google properties from Q2 2018 to Q2 2019 are up +28% witht he cost-per-click on Google properties from Q2 2018 to Q2 2019: -11%. Alphabet beat analysts’ expectations on revenue and EPS but had even lower traffic acquisition costs (TAC) than analysts were hoping for

The majority of Alphabet revenue is from Google’s advertising products (85% last quarter), but analysts predicted Google’s “Other” segment, imcluding its cloud computing division, hardware sales and Play Store will generate larger sales. Other bets, the segment Google reserves for its more experimental units, is also expected to report higher sales.

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction After hours $1,228.94 +93.00 (+8.19%))

Alphabet Q2 2019 Earnings

Highlights

  • Google reported advertising revenue of $32.6 billion for the second quarter, compared to $28.09 billion during the same period last year.
  • TAC as a percentage of Google advertising revenues was slightly lower this year compared to the previous year’s quarter at 22% compared to 23% in 2018. 
  • Google saw a 28% increase in paid clicks on its properties in Q2 of 2019 compared to the same quarter last year.
  • GOOGLsaw an 11% decrease in cost-per-click on Google properties over that same period.

Google advertising revenue trend 2Q19

Other Revenues segment,

Comprises of Google Cloud, Google Play and hardware sales like its Pixel phones and cloud products.

  • $6.18 billion compared to $4.43 billion during last year’s quarter.
  • Cloud revenue made up the majority of this segment and was the third largest driver of overall Alphabet revenue growth.
  • Google recently installed a new cloud boss, Thomas Kurian, who has been charged with growing the business and has already made some splashy acquisitions, including analytics company Looker.

On the earnings call, Google CEO Sundar Pichai said the cloud business reached an annual revenue run rate of over $8 billion. Google said in February 2018 that its cloud business was bringing in $1 billion dollars per quarter, its first disclosure of Google Cloud revenue. Pichai said the company wants to triple its cloud salesforce over the next few years.

 

 

alphabet Other revenues quarterly growth trend 2Q19

Google has been focusing on ramping up its cloud business as it has huge potential to grow the revenue multi-fold considering its market share in the cloud space compared to its peers Amazon (AMZN) and Microsoft (MSFT). Last year it acquired data-transfer start-up Alooma which helps firms to migrate from enterprise database to cloud-based database.

Google is also planning to ramp up its sales team for its cloud offering and look for tuck-in deals which would augment its cloud services business which would help it to close the gap with its nimble rivals Microsoft Azure and Amazon AWS.

The search giant also announced its foray into the gaming space by launching game streaming platform called Stadia at the Game Developers Conference. The company also added that Stadia will be powered by AMD’s graphic processors.

Other Bets Update

Revenue from “other bets,” which includes its subsidiaries outside of Google like the self-driving car company Waymo, came in at $162 million compared to $145 million in the year-ago quarter. operating losses from this segment widened to $989 million, from $732 million a year ago.

 

What Analysts Will Be Watching

Google's traffic acquisition costs

Traffic acquistion costs (TAC) have been rising, even more so after the Facebook scandal and $FB CEO hauled before congress  Alphabet management's response in the conference call on growing regulatory risk and data privacy issues will be closely analysed. The other factor will be Google and Amazon's competition in voice search and smart home appliances. How will this affect or benefit future advertising ? A moderation an improvement will improve margins.

Google l has laid claims to roughly 37% of the total U.S. digital advertising market, ahead of Facebook’s FB 20%.

Alphabet's "Google other" segment

This segment includes revenue from cloud, hardware, and the Android App store. This is a hot sector, not least the cloud factor. Other brought in only 14% of first-quarter revenue, however its strong 36% year-over-year growth was a factor to overall growth and a key for momentum to continue. These investments are long term and will likely seef severe margin compression, how much will satisfy investors?

Google last year launched its next-generation Pixel smartphones. The new Pixel 3 and the Pixel 3XL boast an impressive camera, wireless charging, a better battery, dual front-facing cameras, and more. The new phones hope to challenge Apple’s AAPL latest iPhones. The company also sells an iPad-like tablet product called the Pixel Slate. Plus, the search engine powerhouse recently introduced its new Google Home Hub that allows users to voice-control other smart home products, such as security cameras and lights. Home Hub also features Google’s voice-assistant technology as it fights against Amazon AMZN and others in the crowded home assistant market.

Self-driving unit, Waymo

Where are we with regards to revenue and delivery? The obvious comparison is Tesla, does Waymo have similar issues? 

Source: Google, TradersCommunity, AlphaStreet

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