Shares of Google parent company Alphabet Inc (Nasdaq: GOOG, GOOGL) jumped 4 percent on Tuesday after the company reported a big second-quarter earnings beat. Analysts say Google’s impressive second quarter is an indication that regulatory fears and margin concerns aren’t enough to weigh down GOOG stock.
Alphabet reported second-quarter adjusted earnings per share of $11.75 on revenue of $32.66 billion. Both numbers topped consensus analyst estimates of $9.59 and $31.17 billion, respectively. Revenue was up 26 percent compared to a year ago.
Prior to adjusting for a recent $5 billion antitrust fine by the European Union, Alphabet’s EPS was $4.54. As usual, GOOG advertising revenue made up the lion’s share of its second-quarter business. Ad revenue was $28 billion, up 23.9 percent from a year ago.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
The Alphabet earnings beat demonstrated to investors that the recently implemented General Data Protection Regulation would not be a major headwind for Google’s advertising business.
Google’s “other revenues” segment, which includes Google Cloud and hardware sales, reported revenue of $4.4 billion, up 36.5 percent.
“Other Bets” revenue, which includes health care company Verily and autonomous vehicle company Waymo, was up 49.4 percent to $145 million.
“Our investments are driving great experiences for users, strong results for advertisers and new business opportunities for Google and Alphabet,” CFO Ruth Porat says in a statement.
Alphabet’s all-important traffic acquisition costs were $6.4 billion. TAC as a percentage of advertising revenue dropped to 23 percent from 24 percent in the first quarter. Capital expenditures jumped to $5.5 billion, up 96.4 percent.
GBH Insights head of technology research Daniel Ives says a lower-than-expected TAC is a bullish indicator for investors.
“While regulatory clouds and margins continue to be overhangs on the name, we believe 2Q advertising and bread-and-butter search revenues were healthy and a good barometer of potential strength heading into the rest of 2018 [and] 2019,” Ives says.
KeyBanc analyst Andy Hargreaves says Alphabet stock remains a safe long-term bet as long as revenue growth continues to offset rising costs.
“We maintain Alphabet has excellent growth prospects in its core ad business and huge emerging opportunities in video, hardware, cloud, and Waymo,” Hargreaves says.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
GBH Insights has a “highly attractive” rating and $1,300 price target for shares. KeyBanc has an “overweight” rating and $1,430 target for Alphabet stock.
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Alphabet Inc (GOOG) Stock: Revenue Gains Eclipse Rising Costs originally appeared on usnews.com
