Breaking Down Alphabet’s Dominating Performance
When you read financial and stock market reports as part of online stock trading, you often come across stocks that are said to have done well or crushed analyst expectations. So how well have these stocks actually done and what are the direct inferences we can make? To come to conclusions, you need hard data. So let's look at the example from Alphabet ($GOOG, $GOOGL), the parent company of Google.
Alphabet's Range of Growth
Alphabet crushed investors' Q2 earnings expectations, in spite of those expectations being pretty high in the first place. Its earnings growth has been primarily driven by search and YouTube as well as the company's "other" segment. On Monday, the 23rd of July 2018, following the release of Alphabet's Q2 earnings, the company's stock experienced a nearly 4% jump in trading after-hours. That gave a 19% year-to-date return for the stock, demolishing the 5% gain the S&P 500 reported in that period. Such a sharp rise in stock demands its examination and analysis, so we can get more investing and trading insight. It's how we can get a clear picture of the tremendous growth of the Internet giant. Daniel Sparks of Motley Fool breaks it down.
Revenue had a 26% raise year over year growth for Alphabet, while its Q2 revenue increased to $32.7 billion which is significantly higher than the $32.2 billion consensus analyst estimate. If you analyze this on the basis of constant currency, it is a 23% year-over-year rise. This constant-currency growth rate in revenue was similar to what was achieved during the year-ago quarter.
Google reported a 24% operating margin, excluding a fine charged by the European Commission (EC) that the company will be appealing. This margin is actually a decrease from the year-ago quarter's 26%. But it is higher than the 22% operating margin the company reported in Q1.
There was a 32% increase in adjusted EPS (earnings per share) as well. That shows Alphabet's profitability is really high. The 32% rise was excluding the EC fine's impact. The company's $11.75 adjusted EPS in Q2 demolished the $9.66 consensus analyst estimate.
Traffic Acquisition Costs
Alphabet's estimate-bashing profitability can be attributed to the deceleration in year-over-year growth of Google's traffic acquisition costs (TAC) for its sites or online properties. The management expects this trend to continue. The strength in mobile search is a contributing factor, according to the company's CFO Ruth Porat.
Capital expenditures have soared 93% year-over-year. That's a clear indication of the aggressive investments being made by the company in growth opportunities. There have been major investments made in ads and search for improving the experience for users and advertisers. YouTube has been growing rapidly as have machine learning and cloud services. Alphabet's capital expenditures in Q2 were in the region of $5.5 billion. That's a massive increase from the approximately $2.8 billion expenditures it incurred in the same quarter a year ago.
"Other" Businesses Revenue
And let's not forget the 37% increase in revenue from its "other" businesses that primarily include cloud services, hardware and the Android app store. The 37% year-over-year growth this quarter was also a 1% increase from the 36% growth experienced in Q1.
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