SAN FRANCISCO (July 29): Google parent Alphabet Inc. beat analysts’ sales and earnings estimates thanks to the company’s ad business wringing more money from a swelling mobile user base and better cost controls.
Key points
Second-quarter profit before certain items was $8.42 a share, the company said. That exceeded analysts’ average estimates of $8.03 a share, according to data compiled by Bloomberg. Revenue, excluding payments to distribution partners, rose to $17.53 billion, beating analysts’ forecasts of $16.86 billion.
Traffic acquisition costs, or TAC, paid to distribution partners were $3.98 billion. Alphabet shares rose 4.6 percent to $801.06 in extended trading. They had climbed less than 1 percent to $765.84 at the close in New York, leaving them down 1.6 percent so far this year.
The big picture
Alphabet is investing in new businesses ranging from cars to fast internet service to health care as it looks for the next big thing to replace its aging, yet highly profitable, ad business.
The main Google internet business is adjusting to the rise of smartphones as the computing device of choice. It struggles to make as much money from ads shown to mobile users as it does from ads seen on PCs. That’s partly because the company pays more to partners to reach users on phones. However, Google has shown progress here in recent quarters, including in the latest quarter.
At the same time, Google has continued to make heavy investments in machine-learning research and cloud-computing infrastructure to improve existing products and build new ones. So far, that’s yielded new popular applications like Google Inbox and Photos, new cloud services for businesses, and also let it improve the efficiency of its mammoth data centers.
Street takeaways
"It’s a very clean beat," said Jitendra Waral, a senior analyst at Bloomberg Intelligence. "Mobile and video is center stage for both" Google and Facebook Inc., he added. "There’s no reason they can’t increase their market share."
The details
Second-quarter sales from Other Bets, which includes businesses like internet service provider Fiber, Verily for health care, and Nest for smart-home devices, were $185 million, compared with $74 million a year earlier. Operating losses, excluding equity compensation, for Other Bets were $859 million compared to $660 million a year earlier.
Alphabet capital expenditures fell 16 percent to $2.12 billion in the latest quarter. Aggregate cost-per-click, which measures how much advertisers pay for clicks on their Google ads, fell 7 percent versus a year earlier.