not vested
Tech Earnings Star No. 2: Alphabet
On paper at least, you can see why Wall Street has remained a bit doubtful about the earnings from Google parent Alphabet Inc. (Nasdaq: GOOGL) going into the second quarter.
After all, the Silicon Valley leader in online search and mobile operating systems missed forecasts in eight of the previous 12 quarters, including the first quarter of this year.
But last week, Alphabet showed that doubters need to look at the firm’s long-term trends in mobile growth and cost control.
That second item may be familiar to you. Back in August 2015, I noted that Alphabet’s then-new Chief Financial Officer Ruth Porat would focus the firm on more efficient spending on core operations and less on its “moon shot” projects, like space exploration and extending human life.
In the second quarter, the company said Google’s costs per click fell 7% after a 9% decline in the first quarter. And analysts expect total capital spending for the year to come in at 15% of net revenue, down from about 20% in 2014.
Even better, Alphabet beat on both sales and profits for the quarter, much of it on the strength of its mobile offerings. Sales grew 21% to $21.5 billion, as diluted GAAP earnings per share rose nearly 42% to $7.
Much of the credit has to come from its increased mobile outreach, where it’s making the most of the Android operating system used by most of the world’s smartphone makers.
Ad spending on mobile jumped 63%, compared with search-based ad growth of just 10%. Google is no doubt benefitting from the fact that there are now more than 1 billion smartphones in use around the world, making mobile search and commerce a growth area for years to come.
Since that August 2015 report on Porat, Alphabet has soared 17.1%, compared to 5.8% growth for the S&P 500.
Source: Money Morning