Google Soars After Smashing Expectations; Nasdaq Jumps

After Netflix whiffed on Q2 earnings, there was a sour taste in the mouths of FAA(N)G fans: was Netflix' weakness indicative of what to expect from the other tech mega caps?

The answer, at least according to Google parent Alphabet which just reported Q2 earnings, is a resounding no, because the company not only beat, but smashed resulted as follows:

  • Q2 revenue$32.66BN, Exp. $32.17BN
  • Q2 revenue ex-TAC $26.24BN, Exp. $25.55BN, and above the highest estimate.
  • Q2 Adj EPS (ex the $5BN fine the company was slapped with by the EU) $11.75, Exp. $9.66

Putting Google's total Q2 revenue in context, courtesy of @JonErlichman:

  • Q2 2018: $32.7 billion
  • Q2 2017: $26.0 billion
  • Q2 2016: $21.5 billion
  • Q2 2015: $17.7 billion
  • Q2 2014: $15.9 billion
  • Q2 2013: $13.1 billion
  • Q2 2012: $11.8 billion
  • Q2 2011:  $9.0 billion
  • Q2 2010: $6.8 billion
  • Q2 2009: $5.5 billion
  • Q2 2008: $5.3 billion

But what investors were most happy with is that Traffic Acquisition Costs as a percentage of revenue declined modestly, from 24% last quarter to 23%.

Google reported that its "other revenue", which includes cloud revenue, rose 37% to $4.425BN Y/Y. And while that number also includes hardware, it's probably safe to assume that the bulk of the growth came from the cloud business, confirming that like Microsoft, demand for Google's cloud offering is strong.


Some other details:

  • Q2 Google advertising revenue $28.09BN
  • Q2 operating income $2.81BN
  • Q2 free cash flow $4.66BN
  • Q2 CapEx $5.48BN
  • Q2 total cash and equivalents: $102.3BN

While Google suffered a 22% decline in ad pricing, this was more than offset by a 58% growth in paid clicks and according to BBG Intelligence, this "highlights how strong mobile ad demand is... These results are robust on both the top and bottom lines, and should spur optimism in upcoming earnings for other internet names."

Traffic acquisition costs rose 12% from last year, significantly lower than the 29 percent estimate from analysts at B. Riley. According to Bloomberg, this may be GOOGL's largest EPS surprise in the recent years if one excludes the impact of the EU fine. More importantly, traffic acquisition cost increases seem to be moderating.

Commenting on the result, Alphabet CFO Ruth Porat 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."

To be sure, there was some stinkgers: Other Bets, which is the name of Google's new, non-advertising businesses, lost $732 million in the quarter, above the $633 loss a year ago, even as revenue rose by $48 million to $145 million.

While it took the market a few minutes to react to the adjusted numbers, it is clearly happy with what it sees, and GOOGL shares are now 4.6% higher in the aftermarket.

Google's stellar quarter is also pushing the rest of the FAANGs higher:

Meanwhile, the Nasdaq has completely forgotten the Netflix disappointment: