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Alphabet crushes analyst estimates with $21.5B in revenues, $8.42 EPS

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Joining the list of blockbuster earning reports is Google parent Alphabet, who has beaten all Wall Street expectations and posted a staggering 24 per cent growth in net profit this quarter. This increase has been fuelled by the rapid growth in the company’s core advertising business and the global shift towards mobile devices.

Analysts were expecting the Internet giant to report $20.76 billion in revenue, coupled alongwith earnings per share(EPS) of $8.03. But, Alphabet beat the expectations by a mile, to report a massive $21.5 billion in revenues coupled with an EPS of $8.42.

The year-on-year revenue of the company is up 21 per cent as compared to the 11 per cent increase it witnessed in the same quarter last year. This tremendous growth resulted in a 5 per cent increase in the company’s share prices in after hour trading, added billions to its already huge valuation.

In the second quarter earning call, Alphabet also reports that the net profit rose to $4.88 billion, or $7 a share as compared to $3.93 billion, or $4.93 a share in the previous year.

As mentioned earlier, Alphabet has been able to stabilise and post better than expected results — thanks to its expanded focus on advertising, and even more so on hand-held mobile devices. This is also the result of increased use of search on mobile devices as a whole. Mobile now accounts for more than half of the searches conducted on Google, but it has added the overhead of additional advertising expenditure on the company’s shoulders. Advertisers’ spending on mobile search ads increased 63% in the second quarter over a year prior, while overall search-ad spending rose just 10% over the period.

Google in the quarterly report mentioned that it is now reaping the results of the shift towards a mobile focused scenario, and clicks on ads that Google shows to users increased 29% year-on-year. This demand for mobile advertising and growth can be attributed to the introduction of mobile-compatible ad formats and lower advertising costs. The earning report also tells us that the cost per click went down another 7 percent this quarter compared to the same year over year.

This shows that Google’s advertising business hasn’t stagnated —  as believed by analysts —  but is still on a growth trajectory. But, the company is now facing some competition from social media giant Facebook, who has also introduced new ad formats, including carousel video ads to tackle the market. Facebook has defined and shaped its advertising business to become profitable and extract $6.4 billion revenue, which is still meager when compared to the Alphabet. But, its shows that both advertising medium can co-exist on one Internet ecosystem.

However, to further bolster its advertising efforts — the key source of revenue for the company — its is now introducing machine learning in the mix through products like its own bots and voice-controlled Assistant.

Commenting on the growth of the company in this quarter, Ruth Porat, CFO of Alphabet, adds that,

Our terrific second quarter results, with 21% revenue growth year on year, and 25% on a constant currency basis reflect the successful investments we’ve made over many years in rapidly expanding areas such as mobile and video. We continue to invest responsibly in support of our many compelling opportunities.

But Google isn’t the only entity operating under the newly incorporated parent Alphabet. The parent’s other entities including the home thermostat maker Nest has shown signs of growth amid it’s struggle to find users of its products. Its revenue nearly doubled year-over-year in the second quarter, but it still ate about $900 million out of Alphabet’s bank account. The Internet giant still needs to find ways to make the thermostat business survive and sustain of its own.

The company is also diverting more focus on further developing its own cloud services and its other revenue sections, which includes Google Play. These sections registered an upsurge of 33 per cent in revenues, amounting to $2.1 billion. Amazon Web Services, the king of cloud services, however is way ahead of Alphabet(or Google) and has posted $2.9 billion in revenues this quarter.

The results show that the investors as well as analysts are satisfied with the company’s strategy and plan changes that is undertaking to build itself into the biggest Internet conglomerate. It had recently also crossed Apple to become the most valued company in the whole wide world, but was soon dethroned by the champion again. Apple, has also posted it bombastic quarterly results yesterday —  wherein the sales of iPhones, Macbook and iPads has been dismal as compared to the previous quarter but the company has still registered $42.4B in revenues, $1.42 EPS in Q3’16.


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