Alphabet blows out Street estimates in Q2 on strong advertising sales

Alphabet Inc. (NASDAQ: GOOGL) shares climbed by 5% in extended trading as the Google-parent reported quarterly results that beat Wall Street estimates by a significant margin. The company attributed its hawkish performance primarily to a sharp surge in advertising sales.

Second-quarter financial performance

Alphabet said its net income in the fiscal second quarter came in at $18.53 billion that translates to $27.26 per share. In the same quarter last year, its net income was capped at a much lower $6.96 billion or $10.13 per share.

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The American multinational saw $10.93 billion of traffic-acquisition costs (TAC), removing which it generated $50.95 billion of revenue in Q2 – an increase from $31.6 billion last year. Overall revenue noted a 62% annualised growth to $61.9 billion, marking the first time for Alphabet’s quarterly sales to top $60 billion.

According to FactSet, experts had forecast $56.2 billion in revenue (excluding TAC) and $19.24 of EPS.

Operating margin and other notable figures

Alphabet said its operating margin improved significantly in the recent quarter to 31% from 17% in Q2 of the previous year. The news comes only days after Credit Suisse said it saw an about 30% upside in GOOGL.

Other notable figures in the earnings report include $35.85 billion in sales from the search engine versus the year-ago figure of $21.3 billion. Google’s Cloud revenue and YouTube ad sales noted an annualised growth of 54% and 84%, respectively.

Brent Thill’s remarks on CNBC’s “Closing Bell”

According to Jefferies Brent Thill, Alphabet “walloped” the estimates in its fiscal second quarter with all of its business segments reporting numbers well above the Street expectations. Referring to a 47% beat on free cash flow, he said on CNBC’s “Closing Bell”:

“What’s impressive is not only the top line but also the bottom line. Ruth Porat has been pouring more money back into share repurchase. So, we’ve seen an increasing percentage of their free cash flow go back into the buyback. What Ruth has been doing with the capital structure is extremely shareholder-friendly.”