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Alphabet: 2Q19 results beat expectations

Google’s parent company, Alphabet, reported better-than-expected 2Q19 results on Thursday (25 July). Earnings came in at $14.21/share, vs the Refinitiv consensus forecast of $11.30/share, while sales rose 19% YoY (or 22% YoY in constant currency terms) to $38.94bn, ahead of the $38.15bn Refinitiv consensus had expected.

Ad revenues were up 16% YoY. Google sites sales rose 18% YoY on the back of the benefits from applying machine learning to user and advertiser experiences. Network sales increased by 9% YoY (driven by Google Ad Manager and Ad Mob), while paid clicks on Google properties jumped 28% YoY. However, cost-per-click on Google properties declined 11% YoY. Impressions on Google Network Members’ properties were unchanged but cost per impression on these properties rose 5% YoY.

In terms of its various segments, Other revenues jumped 39.7% YoY, with Cloud sales strong and Google Cloud Platform (GCP) being the main driver. Google Play’s revenue was also robust and its Other Bets segment saw revenue rise 11.7% YoY.

By region, the US recorded a revenue increase of 20% YoY, EMEA was up 21% in constant currency terms, Asia Pacific (APAC) rose 33% YoY in constant currency terms and Other Americas jumped 25% YoY in constant currency terms. There was a sequential acceleration vs 1Q19 in all of its regions.

The cost of revenue increased by 24.5%, while traffic acquisition costs (TAC) were up 12.7% YoY. Other cost of revenues was $10.1bn, up 35% YoY, including datacentres, content acquisition costs ([CACs] mostly YouTube and other ad-supported content, as well as for other subscription services – YouTube Premium and YouTube TV – these have a higher CAC as a percentage of revenue). There was also growth in hardware costs. The decline in TACs continued. However, there was a positive mix shift in revenue from Network to Sites, while the faster-growing mobile advertising segment had a negative impact on TAC. The growth of YouTube (TAC-free) also had a positive impact.

Figure 1: TACs to Google network members and distribution partners,mn:

Source: Alphabet

Alphabet’s operating profit (OP) advanced 13% YoY, with an operating margin (OPM) of 24%. Google’s OP was up 16% YoY, with an OPM of 26.8%, while its Other Bets segment’s losses expanded from $732mn to $989mn. Research and development (R&D) costs rose 21.5% YoY.

Alphabet announced the authorisation of stock repurchases valued at $25bn (3% of the firm’s market cap pre-results). We note that the signal here is more important than the amount. Alphabet has cash on hand of $121bn.

Our key takeaways of these results were:

  • Alphabet (Google) delivered robust revenue growth and operating results, reminding investors that it is one of the world’s great companies.
  • For the first time, management disclosed the size of its Cloud business, which is hitting an annualised revenue run-rate of $8bn. This segment is now the third-largest dollar contributor to Google’s overall growth (after Search and YouTube, respectively).




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WEBINAR | The Navigator – Anchor’s Strategy and Asset Allocation, 2Q24

Anchor CEO and Co-CIO Peter Armitage will host the webinar, provide an introduction to current global and local market conditions and give his thoughts on offshore equities. Together with Head of Fixed Income and Co-CIO Nolan Wapenaar, Pete will also discuss Anchor’s strategy and asset allocation for 2Q24, focusing on global equities and bonds. In addition, Fund Manager Liam Hechter will provide insights into local equities, highlighting some investment ideas; Global Equities Analyst James Bennet will discuss Ferrari and give an update on Tesla, and finally, Analyst Thomas Hendricks will participate in a Q&A with Peter, explaining the 10-year US Treasury to attendees.