Alphabet\'s revenue rebounds; easing doubts on growth and boosting shares

Alphabet Inc shares rose about 8 per cent after the company reported quarterly results that eased investors’ concerns about growth challenges facing its Google advertising business.

Driven by ad sales, second-quarter revenue and earnings beat analysts’ expectations. In addition, the world’s largest online search and ads firm, unlike No. 2 online ad player Facebook Inc a day earlier, offered no worrisome guidance about increasing regulatory scrutiny.

The results helped Alphabet dismiss as a rare blip a USD 1 billion revenue miss in the first quarter, which had prompted an outburst of investor questions and the biggest one-day sell-off in its shares in about seven years.

In after-hours trade on Thursday, the shares rose to USD 1,226.60, on track for their biggest single-day increase in four years though still down about 4 per cent from their high before the April slide.

Alphabet’s shares have lagged peers on Wall Street this year, rising about 9 percent through Thursday’s close, compared to a roughly 20 per cent gain for the S&P 500 broadly.

Questions linger about whether privacy, content moderation and antitrust rules proposed or already passed in the United States and other high-revenue countries will slash ad prices. Google also faces an industrywide slowdown in ad sales in the United States and Europe, with revenue from emerging markets not yet picking up the slack.

Google Chief Executive Sundar Pichai told analysts on Thursday that advances in ad targeting and new services for consumers worldwide would spur growth. He said the company had survived calls for regulation before.

“We understand there will be scrutiny,” and “we will engage constructively,” he said.

Weakening Concerns

Alphabet, which generates about 85 percent of its revenue from sales of ad space and ad technology, reported total second-quarter revenue of USD 38.9 billion. That was up 19 per cent over last year and compared with 17 per cent growth in the first quarter. Analysts on average estimated 16.8 per cent growth and USD 38.2 billion in revenue, according to IBES data from Refinitiv.

The last time that Alphabet had two consecutive quarters of revenue growth below 20 per cent was three years ago.

Executives said the latest results backed their contention that the performance recently has been affected by currency exchange rates and one-off fluctuations rather than advertiser flight or some deeper challenge to its business.

Alphabet’s chief financial officer, Ruth Porat, appeared to dispel other analyst concerns, saying the company has seen “virtually no impact” to revenue from efforts to stop running ads on YouTube videos that some have characterized as extremist or hateful.

Alphabet authorized up to USD 25 billion in new stock buybacks, aiming to make use of its USD 121 billion in cash.

Pichai said quarterly revenue from licensing cloud computing services and workplace software jumped to about USD 2 billion, from its last disclosure of USD 1 billion at the end of 2017. He said the cloud unit would triple its sales staff over the next few years.

Atlantic Equities analyst James Cordwell told Reuters in an email that the buyback and cloud updates “suggests that management cares about stock performance, which will be a relief to shareholders!”

Net income for the second quarter rose to USD 9.95 billion, or USD 14.21 per share, compared with analysts’ estimates of USD 8.02 billion, or USD 11.32 per share.

Alphabet’s quarterly costs at USD 29.76 billion were about flat with the same period a year ago. The operating margin was 24 per cent, up from 18 per cent in the first quarter.

Alphabet in its earnings release on Thursday did not mention any government investigations.

Facebook Inc, along with the release of its earnings on Wednesday, said the FTC had informed it last month that it was under antitrust investigation. The social media giant also acknowledged a broad US Department of Justice antitrust review of large internet companies.

Reuters reported last month that the US Federal Trade Commission was gearing up to investigate Google over complaints of anti-competitive behaviour.

Accusations lodged against Google by rivals and other critics span its advertising, app store, search and other businesses.

On Thursday, the Texas attorney general’s office announced that a bipartisan group of state attorneys general is weighing a range of antitrust actions against big tech companies.