Alphabet soars as Google growth concerns ease

July 26, 2019 07:23
Alphabet said revenue rose 19 percent, driven by gains in sales of mobile ads, YouTube ads and cloud computing services. Photo: Reuters

Alphabet Inc. shares rose 9 percent after the company reported quarterly results that eased investors’ concerns about the growth challenges facing its Google advertising business, Reuters reports.

Second-quarter revenue and earnings beat analysts’ expectations, helping Alphabet dismiss a revenue miss in the first quarter as a blip. In addition, the company offered no worrisome guidance even as it faces increasing regulatory scrutiny.

It announced a US$25 billion stock buyback authorization. Total quarterly revenue rose 19 percent to US$38.9 billion, driven by gains in sales of mobile ads, YouTube ads and cloud computing services, Alphabet said.

Analysts on average estimated 16.8 percent growth and US$38.2 billion in revenue, according to IBES data from Refinitiv.

Revenue of the cloud business jumped to about US$2 billion, from US$1 billion at the end of 2017.

The jump in shares to US$1,240 in after-hours trade on Thursday put them on track for their biggest single-day increase in four years. Still, shares are down about 4.3 percent since a fall in late April sparked by the first-quarter results.

The latest results brought Alphabet closer to the 20 percent revenue growth it had generated for several years before posting 17 percent growth in the first quarter this year.

“Investors were anticipating revenue deceleration, but Alphabet delivered a reacceleration,” Atlantic Equities analyst James Cordwell told Reuters in an email.

“An increased buyback and greater disclosure around cloud revenue also suggest that management cares about stock performance, which will be a relief to shareholders!”

Alphabet generates about 85 percent of its revenue from tools used in online advertising or the ad space itself.

In the first quarter, company executives said results were affected by exchange rates for foreign currency, competition and an unspecified product change that had boosted results in the year-earlier period.

Alphabet’s chief financial officer, Ruth Porat, appeared to dispel some analyst concerns, saying that enforcement actions against objectionable content on YouTube had “virtually no impact” on ad sales.

The second-quarter results showed greater revenue than analysts had anticipated from both Google’s advertising and non-advertising businesses.

Ad clicks on Google’s properties rose 6 percent compared to the first quarter, when they had fallen 9 percent. The number of ads shown on websites and apps with which Google partners held steady compared to last quarter.

Alphabet’s quarterly costs at US$29.764 billion were about flat with the same period a year ago. Alphabet last year began spending more on hiring for its cloud computing division, acquiring and policing content, developing artificial intelligence capabilities and adding facilities.

The second-quarter operating margin was 24 percent, up from 18 percent in the first quarter.

Net income for the second quarter rose to US$9.95 billion, or US$14.21 per share, from US$3.2 billion, or US$4.54 per share, a year earlier, when it recorded a US$5 billion charge related to a fine by European antitrust regulators for abusing its dominance in mobile software.

Analysts’ average estimate for quarterly net income was US$8.024 billion, or US$11.32 per share.

Shares of the company have lagged its peers this year, rising about 10 percent, compared to about 20 percent growth for the S&P 500 members broadly.

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