Earnings of Google parent Alphabet top Wall Street expectations

Ann Santiago
July 25, 2018

In the past, Google earned as much as 97 percent of its revenues from ads, but that number has been falling. The shares surged to a record high. The shares rose as much as 5.3 per cent, the most in nearly nine months, to US$1,275 at the market open in New York Tuesday.

Nowak today lifted his Alphabet price target to $1,325 from $1,250 while maintaining an Overweight rating.

The monster quarter came despite a regulatory backlash in Europe, rising questions about Google's massive data collection and clashes with advertisers over inappropriate content on YouTube.

Also delighting Wall Street, Alphabet has apparently lowered the expenses in the non-Google businesses in its portfolio.

Action Alerts PLUS holding Alphabet GOOGL smashed analyst profit forecasts amid strength in all areas of the business.

Alphabet reported revenues of $26.24bn for the quarter, comfortably beating analysts' expectations, and made a profit of $2.8bn, down from a profit of $4.1bn for the same period previous year after the fine. While Google has said it will appeal, it has until mid-October to adjust its behavior.

Googlechief executive Sundar Pichai said that it was too soon to speculate on how Android may be affected by the ruling but said the company would take a "constructive approach".

The European Commission hit Google with a 4.3 billion euro ($5 billion) fine last week for abusing the dominance of its mobile operating system. Instead, comments made by Pichai suggest that Google may place greater focus on Maps for additional revenue opportunities.

The EU handed out its latest $5 billion fine on July 18. The remaining $4.4bn came largely from Google's cloud business and hardware sales. Thirteen analysts surveyed by Zacks expected revenue of $25.6 billion.

Other tech giants Amazon and Facebook will report quarterly results later in the week.

Pichai highlighted rising use of the company's digital maps, particularly in emerging markets.

Following a reorganisation of the company, the Google unit that includes the main search engine and YouTube video service still delivered the lion's share of revenues at US$32.5 billion, with "other bets" driving US$145 million in revenue. That leap reflects a recent push by Google to get marketers buying across more of its advertising channels. You can use them to surf otherwise seedy public WiFi with more security and privacy. Google's capital expenditures doubled to $5.48 billion from the year-ago quarter, while the operating loss at its "other bets" segment grew to $732 million from $633 million.

Traffic acquisition costs, a key metric in Google's ad business, went up to 23% of ad revenue in the second quarter.

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