Alphabet stock: missed expectations and yet shone

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by Florian Hielscher, Euro on Sunday

SThe figures presented by the tech giant from California only provided such relief on the stock exchanges. The Google parent has regularly delivered strong figures in the past, but these are turbulent times.

With the results presented, Alphabet roughly met market expectations. For the second quarter ended June 30, the Google parent reported sales of $69.7 billion – 13 percent more than in the same quarter last year. CFO Ruth Porat spoke of “solid” results. The company also cites exchange rate fluctuations as having an impact on growth of 3.7 percent. Operating profit, on the other hand, hardly increased.

The most important sales drivers were the search engine business and demand in the cloud sector. The data cloud business shone with a sales growth of around 35 percent, analysts had had a little more on the slip here. So far, the cloud segment still contributes a manageable part to the total turnover, is happening but with strong growth rates. In order to be on an equal footing with competitors like Amazon or Microsoft, Alphabet continues to invest in the division. The losses increased compared to the previous year. Porat does not see a problem in the lack of profitability: “This is an exceptional opportunity, a long-term opportunity, and enterprise customers are still in the early stages of their transition to the cloud.”

The advertising business, on the other hand, remains the group’s heavyweight and accounts for more than 80 percent of sales revenues. After weak numbers from Twitter and especially the photo service Snap, expectations had fallen here. Concerns arose that the challenging economic situation could reduce advertising customer spending and thereby burden the group. But Alphabet benefited from enormous market power and, contrary to fears, even achieved double-digit growth with advertising on Google search engines or the video platform YouTube.

Profit down, price up

The advertising business via the search engines thus presented itself as more resilient than the social media advertising of its competitors. Nevertheless, Alphabet was not able to escape the prevailing market challenges. Operating profit was roughly at the level of the same quarter last year, but the internet giant had to accept a decline in adjusted profit: At $1.21 per share, the group earned around eleven percent less than a year earlier. For now, there is no improvement in sight. For the remainder of the year, Porat continues to expect higher capital expenditures compared to the previous year, especially in the area of ​​technical infrastructure. In addition, a slowdown in new hires will be more noticeable in the coming year, added the CFO.

Alphabet’s figures failed to meet expectations in some areas, and the market environment continues to be challenging. Nevertheless, the group also brought back a bit of optimism. Secretly, the market had probably been expecting worse news. The share had recently lost, after the figures were presented, investors grabbed it again. The next quarterly figures will show whether the group can compensate for the economic downturn through its positioning.

Strength: Even in times of crisis, the Internet giant benefits from its market power and is active in exciting segments. Buy.

Notice of Conflicts of Interest:
The managing editor-in-chief, Mr. Frank Pöpsel, has directly and indirectly taken positions on the following financial instruments mentioned in the publication or related derivatives that can benefit from any price development resulting from the publication: Alphabet.

Image sources: Alphabet Inc., JPstock / Shutterstock.com