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Alphabet reports a strong second quarter for 2018

Following a strong report from Alphabet for its second quarter, stock prices jumped to one of their highest prices ever. Looking at one-day trading charts the price spikes during after-hours trading so it should be interesting to see what happens as the during the day tomorrow in the U.S. when markets open. The Q2 2018 report was able to come back looking so good namely thanks to Google’s ad revenues which had gone from $22.6bn in Q2 2017 to $28bn in Q2 2018.

Ruth Porat, CFO at Alphabet and Google, said:

“We delivered another quarter of very strong performance, with revenues of $32.7 billion, up 26% versus the second quarter of 2017 and 23% on a constant currency basis. Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet.”

Aside from ads, other aspects of Alphabet did really well too. Its 'other revenues' category which includes its cloud business and hardware sales reached $4.4bn this quarter, up from $3.2bln last year. It’s 'other bets' category which includes the more out-there proposals such as Waymo and Verily hit $145mn in revenues this quarter, up from $97mn last year.

The money that Google pays to phone manufacturers to use its services – traffic acquisition costs (TACs) – rose from $5bn last year, to $6.4bn. This cost represents 23% of Google’s ad revenue, up from 22% last year. It’s unsurprising that TACs are continuing to grow as mobile becomes more important.

Another major take away from the report is that total capital expenditures jumped from $2.8bn in Q2 2017 to $5.5bn this quarter. The costs were largely caused by Google as opposed to the other bets. Porat, in an earnings call, said:

“Our view is it gives you a lens into our outlook for growth. It's search and ads, it's newer businesses, it's also the importance of machine learning. We’re looking for additional compute capacity given our outlook for growth. While we're ensuring that we're well-positioned to support the growth we see, we do constantly remain focused on efficiency per unit of compute.”

We’ll have to wait for several hours now before the markets in the U.S. and Europe open before we get a better picture of the reactions to the news, however, on the face of it, despite the fine imposed by the EU, things are looking good for Google.


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