Alphabet trounces profit estimates as Google reins in costs

24 July, 2018, 21:36 | Author: Shannon Aguilar
  • Credit Krisztian Bocsi  Bloomberg

Parent company Alphabet Inc. posted second-quarter results that walloped Wall Street expectations, while Chief Executive Officer Sundar Pichai hinted at new untapped advertising opportunities and highlighted growth at video service YouTube and the cloud arm.

Operating margin rose to 24 percent from 22 percent last quarter, excluding the $5 billion antitrust fine issued last week by the European Commission over Google's anticompetitive licensing of Android software.

Google properties revenue jumped 26 percent to $23.3 billion.

Google's biggest earner during the quarter was advertising which brought in total revenues of $28.1 billion.

Alphabet shares also have been lifted, according to analysts, by a forecast that expense growth would level off in the second quarter because the company entered the second year of a costly deal to make Google the default search provider on iPhones.

Alphabet recorded revenues of $32.7 billion and profits of $3.2 billion in Q2 2018. After Google complied with last year's charges by the European Union related to its shopping service, competitors complained that its solution did little to reduce the harm to their businesses.

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Investors welcomed the news enough to push Alphabet's stock up to an all-time high of $1,265 a share late Monday, valuing the stock at around $875 million.

At least three financial analysts who follow Google have said this year that separating its various advertising businesses in financial results would help investors understand how the competition is affecting the company. It is appealing the ruling.

Asked about the impact of Europe's GDPR data rules on its business, Pichai said it's too early to tell, adding, "We've always been focused on user privacy". The average estimate of 13 analysts surveyed by Zacks Investment Research was for earnings of $9.45 per share.

Other tech giants Amazon and Facebook will report quarterly results later in the week. The headlining story of this release is that the market was surprised by Google acheiving far stronger ad sales than expected. Oddly enough, however, Alphabet isn't spending much money to get those groups going - capital expenditures for Other Bets was a puny $10 million for the quarter, compared to $148 million a year ago.

Its Other Bets segment, which includes companies like the driverless vehicle firm Waymo, reported a quarterly operating loss of $732m, up from $633m past year.

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