Google Soars After Smashing Expectations; Nasdaq Jumps

  • Written by Zero Hedge
  • Published in Economics

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

Also notable: Traffic Acquisition Costs as a percentage of revenue declined modestly, from 24% last quarter, to 23%.

Summarized:

Some other details:

  • Q2 Google advertising revenue $28.09BN
  • Q2 operating income $2.81BN
  • Q2 free cash flow $4.66BN
  • Q2 CapEx $5.48BN

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."

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 5.5% 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:

...

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