Alphabet (GOOGL) on Tuesday reported second-quarter earnings and revenue that topped consensus estimates as operating margins improved. Google stock initially rose on Q2 results, but then reversed down as management signaled higher expenses in the September quarter, curtailing margin growth.
In Q2, revenue growth in the search advertising business and cloud computing unit came in above expectations, but YouTube missed.
Also, Chief Financial Officer Ruth Porat said Alphabet would hike capital spending on self-driving automotive business Waymo. Porat said Alphabet will spend at least $5 billion more on the Waymo project.
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Reported after the market close, Google earnings came in at $1.89 per share, up 31% from a year earlier. The internet giant reports earnings under generally accepted accounting principles, also known as GAAP.
Further, gross revenue rose 14% to $84.74 billion. Analysts polled by FactSet had predicted Google earnings of $1.84 per share on revenue of $84.22 billion.
“Q2 results were not as convincing as in Q1, when beat was broader,” said Jefferies analyst Brent Thill in a report.
On the stock market today, Google stock initially rose more than 2% in extended trading. Shares reversed down on management commentary during the earnings call with Wall Street analysts. Google stock fell 1.6% to 178.90 after the earnings call.
Heading into the Google earnings report, shares were up 32% in 2024.
Google Stock: Capital Spending Higher Than Expected
Additionally, search advertising came in at $48.51 billion, topping estimates of 12% growth to $47.71 billion.
Meanwhile, Google posted YouTube ad revenue of $8.66 billion, missing estimates of 16% growth to $8.93 billion.
Further, Google reported Q2 cloud-computing revenue of $10.35 billion, above estimates of 27% growth to $10.215 billion.
In addition, investors have been focused on operating expenses and margins as capital spending jumps amid investments in artificial intelligence. In Q2, operating margins rose to 32% from 29% a year earlier, topping estimates for 31% operating margins.
Also in Q2, capital spending came in at $13.19 billion, slightly ahead of consensus estimates of $12.3 billion, and higher than Q1 spending of $12 billion.
Bigger Waymo Spending On The Way
Tekedra Mawakana, co-CEO of Waymo, said on Elon Musk’s X social media platform: “Alphabet has committed up to $5 billion to Waymo. We are grateful for their immense vote of confidence in our team and recognizing the amazing progress we’ve made with our technology, product and commercialization efforts.”
“The $5 billion Waymo is a multi-year investment,” said Angelo Zino, analyst at CFRA Research, in an email. “We think it is warranted given prospects for autonomous driving capabilities and when spread over multiple years is just a drop in the bucket.” He noted Google may reach $50 billion in 2024 capital spending.
Meanwhile, Porat will assume a newly-created role of president and chief investment officer. Part of Porat’s new role involves oversight of Alphabet’s “Other Bets” such as Waymo.
Also, Google stock holds a Composite Rating of 98 out of a best-possible 99, according to IBD Stock Checkup.
Further, Google stock buybacks reached a near record $15.68 billion in Q2, topping the $14.97 billion spent in Q1.
Google is among AI stocks to watch.
Meanwhile, Google’s new chief financial officer, Anat Ashkenazi, starts July 31.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
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