Google Parent Alphabet Surprises With Better Than Expected Earnings

By Jaikumar Vijayan  |  Posted 2016-07-28 Print this article Print

For the first time in more than 10 quarters, earning per share and revenues were higher than Wall Street expectations.

Google parent Alphabet's stock soared up by over 6 percent late Thursday afternoon on news of a better than expected performance from the company for the second quarter of 2016 ended June 30.

Alphabet announced earnings per share of $8.42 on revenues of $21.5 billion last quarter. The numbers handily beat Wall Street expectations of $8.04 a share on revenues of $20.76 billion. Second-quarter 2016 revenues represented a 21 percent increase over the same period last year. Net income for the quarter at $4.88 billion was 28 percent higher on a year-over-year basis.

In a statement, Ruth Porat, chief financial officer at Alphabet, attributed the strong results to investments the company has made over the years in areas such as video and mobile. "We continue to invest responsibly in support of our many compelling opportunities," Porat said.

Much of the revenues and growth predictably came from Google's advertising business. Total revenues from advertising jumped 19 percent from just over $16 billion in the same quarter last year to $19.1 billion in the last quarter. Of that, $15.4 billion came from advertisements served on Google websites including Search, Maps, YouTube and Finance. The remaining $3.7 billion came from advertisements served through Google's Network Members including AdSense and DoubleClick.

Paid clicks on Google websites jumped nearly 40 percent year over year, but fell 3 percent on Network Members websites compared with the same period last year.

This is the second quarter that Google has broken out revenues for its various other ventures—collectively referred to as "other bets"—like its autonomous car initiative, Google Fiber, Calico and Google X. The numbers reveal that while revenues from these ventures increased from $74 million one year ago to $185 million, losses did so as well, from $660 million to $859 million in the second quarter of 2016.

This is the first time in more than 10 quarters that Google's revenues and earnings per share have come in higher than market expectations. The news sent the company's stock up well over 6 percent at one point Thursday evening before settling back to around $801, representing a gain of 4.7 percent over the closing price for the day.

"Overall, Alphabet's results don't raise a lot of red flags," said Charles King, principal analyst at Pund-IT. While ad revenues were predictably the primary driver of revenue growth, the results show that Google's efforts to bolster mobile and video ads are paying off. "That's great news for shareholders, especially following Facebook's mobile ad success."

King downplayed Google's losses with its other bets ventures. "These kinds of high risk, high return ventures are bound to have up quarters and down," considering their moonshot nature, he said.

Facebook's strong results and now Google's better than expected performance signal strong growth in revenues from mobile advertising, added Ezra Gottheil, an analyst with Technology Business Research.

One more positive sign is the healthy growth in revenues from non-advertising-related businesses at Google such as the company's business cloud services, applications and Google Play. "This helps Google grow revenue even as the advertising market matures," Gottheil said.

At the same time, the results also reflect some tighter cost controls. For example, both operational expenses and capital expenses as a percentage of revenue were down last quarter, he said.


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