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Alphabet, Inc. Earnings: 5 Metrics You Shouldn't Overlook
Beyond Alphabet's unfortunate and hefty $2.7 billion fine paid during the
quarter, the tech giant's overall business is crushing it.
Daniel Sparks (TMFDanielSparks)Jul 25, 2017 at 1:26PM
Shares of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) are down several percent
today following the tech company's second-quarter earnings report. But don't
let the pullback in Alphabet shares (small-f) fool you. The online search
giant is firing on all cylinders.
Sure, the $2.7 billion European Commission fine paid during the quarter
reduced Alphabet's operating income by 40%. Further, the fine could
foreshadow some changes in the way Europe regulates Alphabet's display ads
and, ultimately, reduce its revenue in this important market. But when
investors look beyond this headwind, they'll find a dominant, profitable
business that continued to thrive during the second quarter.
Google headquarters entrance.
IMAGE SOURCE: GOOGLE.
Besides Alphabet's headline-grabbing $2.7 billion fine during the quarter,
here are five other key metrics investors shouldn't overlook.
1. Advertising revenue is up 18% year over year. Representing 87% of
Alphabet's $26 billion of revenue during the quarter, revenue from Google
ads continued to grow rapidly, highlighting the health of Alphabet's core
segment.
2. Google's paid clicks were up 52% year over year. Defined as the number of
clicks on Google properties and Google Network Members' properties that
advertisers had to pay for during the quarter, paid clicks rose sharply. But
this huge increase was offset a bit by a slight decrease in the amount of
revenue advertisers paid Alphabet per click. The average cost-per-click was
down 23% year over year.
As was the case in Q1, the key drivers behind Alphabet's advertising revenue
growth were mobile search and YouTube, management said. Alphabet's cloud
business continued to be a rising star for the company. Google CEO Sundar
Pichai said cloud deals larger than $500,000 tripled year over year.
3. Alphabet's "other" Google revenue soared 42% year over year. Not to be
confused with Alphabets "other bets," which represent only 1% of revenue and
are very unpredictable revenue sources, other revenue now represents 12% of
Alphabet's total revenue, up from 10% in the year-ago quarter. The growth
was primarily driven by the Android app store, Google-branded hardware, and
cloud services.
Google Home smart speaker, along with its interchangeable bases of different
colors
GOOGLE HOME SMART SPEAKER. IMAGE SOURCE: GOOGLE.
4. Alphabet's operating loss from its other-bets segment narrowed to $772
million. Including Alphabet's smaller "moonshot" businesses, such as Nest,
Verily, Fiber, and Waymo, other-bets revenue increased from $185 million in
the year-ago quarter to $248 million in the second quarter of 2017.
Meanwhile, Alphabet's operating loss improved by $83 million sequentially
and year over year.
5. Alphabet's total revenue increased 21% year over year. With its 18% year-
over-year growth in advertising, a sharp rise in other Google revenue, and
improving performance of Alphabet's more speculative other-bets segment,
Alphabet looks as strong as ever. And perhaps even more telling, Alphabet's
overall revenue was up 23% year over year when adjusting for currency
headwinds.
As Alphabet's underlying business highlights strong growth from both the
search giant's core business, as well as from its increasingly important
Android app store, cloud, and hardware businesses, investors may want to
consider using this slight pullback in Alphabet's stock price as an
opportunity to buy into this enduring market leader.
