Net income of $9.93 billion, $14.21 per share, was 21% ahead of a year ago. Revenue of $38.94 billion was 29% better. While European Commission fines were down $3.3 billion that accounted for just half the earnings gain. Analysts called it the company’s best day in four years.
The numbers hit like an electric current on Alphabet stock, which had been stalled since the previous earnings announcement in May. Shares were due to open July 29 at $1,245 each, approaching May’s all-time high of $1,295.
GOOG Stock All Clear?
Before earnings came out, the second quarter seemed to have been a hard one in Mountain View.
It started with a disappointing March quarter report, which caused expectations for the June quarter to be taken down.
The co-founders and controlling shareholders, Larry Page and Sergey Brin, were no-shows at their annual meeting. The Department of Justice announced two big antitrust probes, one against the Google search monopoly and another, broader one against “big tech.”
But when the numbers came out, the dark clouds disappeared. Google said its Pixel phones are selling well and that revenue was up across the board, even at YouTube. The best news was in the cloud segment, where Google predicted a run rate of $8 billion. The company said it will buy back $25 billion of its stock.
Google maintained a zen-like calm about the government investigations with analysts, calling them understandable and saying it will cooperate fully.
Those searching for reasons to be bearish might note that its cloud market share is still 8%. They also note that “other bets” like its Verily Health platform and Waymo self-driving cars lost even more money than before, $935 million.
The best reason to like Google remains chief financial officer Ruth Porat, whose firm hold on the tiller makes up for the founders’ absence.
Porat has quietly followed the company’s cloud rivals wherever they found success, into cloud, phones, and in voice interfaces, doubling the capital budget and instilling financial discipline.
While calling Elizabeth Warren’s proposal to break the company up “healthy, thoughtful conversation,” he said Google’s size lets it invest in cutting-edge technology like artificial intelligence and quantum computing that may not pay off for 5-10 years.
Thunder From the Right
Pichai may be sanguine about critics on the left, but he has yet to disarm those on the right.
Some former engineers continue to insist Google algorithms are biased against conservatives. The lawsuit of former engineer James Damore, who claims the company fired him because he was a conservative, white male, is still going through discovery. The Trump Administration continues selling the idea that Google is biased against it.
GOOGL Stock: The Bottom Line
With its second quarter beat in the rear-view mirror, Alphabet looks cheap. It sports a price to earnings ratio of just 25, a growth rate of 20%, and a price to sales ratio of 6.3. But the best gains come when analysts are dumping on Google. They’re not now.
Alphabet doesn’t pay a dividend. It never has. Buying back stock reduces a buyer’s risk, but income investors are not welcome to the party. Still, with capital gains averaging 20% per year over the last five years, a young investor with a 10-year time horizon can buy this stock at any time and feel safe with it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
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