Google, aka Alphabet, reported Q2 earnings that beat on the top and bottom line, reporting EPS of $5.01, above the estimate of $4.45, and earnings per share excluding the $2.7 billion European Commission fine of $8.90, also above the $8.25 expected. Total Q2 revenue of $26.01 billion rose 21% Y/Y, and also beat consensus of $25.64BN.
Yet while Google's top and bottom line results were both impressive, the reason why the stock was down as much as 3.6% in the after hours appears to be that while Google reported paid clicks in Q2 surged by 52%, well above expectations of a 35% increase, and more than the 44% in Q1, Google's cost-per-click - which measures what advertisers pay when people click on search ads that show up alongside the results served up by Google’s search engine - tumbled 23%, a drop from the -19% CPC reported in Q1 and down even more from the -15% in Q4 2015.
In other words, more people are clicking on ads, but those clicks are costing advertisers less money per click, and generating less sales for GOOGL. In short, a potential revenue mix concern where Google is compensating for lower pricing power (due to the encroachment of Facebook?) with higher ad volumes.
One thing is certain: the CPC trend is certainly not Alphabet's friend:
Additionally, Q2 Revenue ex-Traffic Acquisition Costs was $20.92 Billion, modestly below the $21.07 billion consensus estimate.
Some other details:
- 2Q Other Bets revenue $248 million
- 2Q Other Bets operating loss $772 million
- 2Q Google advertising revenue $22.67 billion
- 2Q free cash flow +$4.57 billion
While the stock initially responded favorably, surging to new all time highs above $1000, the latest print was down 2.5% as the market digests the potentially disappointing revenue mix data.