It has been about a month since the last earnings report for Alphabet (
GOOGL Quick Quote GOOGL - Free Report) . Shares have added about 4.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Alphabet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Alphabet Earnings Crush Q2 Estimates, Revenues Rise Y/Y
Alphabet’s second-quarter 2021 earnings of $27.26 per share surpassed the Zacks Consensus Estimate by 37.1%. The figure surged 169.1% year over year and 3.7% sequentially.
Revenues of $61.9 billion increased 62% year over year (57% at constant currency). The figure was up 11.9% front the prior quarter. Net revenues — excluding total traffic acquisition costs or TAC (TAC is the portion of revenues shared with Google’s partners, and amounts paid to distribution partners and others, who direct traffic to the Google website) — were $50.95 billion, which outpaced the consensus mark by 10.6%. The figure rose 61.3% and 11.7% from the year-ago quarter and the previous quarter, respectively. TAC of $10.9 billion was up 63.3% year over year and 12.5% sequentially. Top-line growth was driven by solid momentum across the company’s search, advertising, cloud and YouTube businesses. Increased online activities throughout the world remained a tailwind. The company’s growing investments in AI and cloud technology, which are expected to yield huge returns in the days ahead, remain major positives. This, in turn, is expected to continue instilling investors’ optimism in the stock. Top-Line Details
The segment includes Google Services, Google Cloud and Other Bets.
Google Services Revenues from the Google services business increased 63.1% year over year to $57.1 billion, accounting for 92.3% of quarterly revenues. Year-over-year growth benefited from the growing proliferation of consumer online activities and rising advertiser spending. Under the services business, search revenues from Google-owned sites increased 68.1% year over year to $35.8 billion. YouTube advertising revenues grew 83.7% year over year to $7 billion, while Network advertising revenues increased 60.4% to $7.6 billion. Total Google advertising revenues grew 68.9% year over year to $50.4 billion and accounted for 81.5% of total revenues. This was primarily attributed to the strength in the retail category. Google Other revenues — which consist of Google Play and YouTube non-advertising revenues — were $6.6 billion for the second quarter, up 29.3% year over year. Google Cloud Google Cloud revenues rose 53.9% year over year to $4.6 billion, accounting for 7.5% of the quarterly revenues. Other Bets Segment Other Bets’ revenues were $192 million, up 29.7% year over year, accounting for 0.3% of total second-quarter revenues. Operating Details
Cost and operating expenses were $42.5 billion, up 33.3% year over year.
Operating margin was 31.3%, which expanded from 16.7% in the year-ago quarter. Segment-wise, Google Services’ operating margin of 39.2% expandedfrom 27.3% in the prior-year quarter. Google Cloud and Other Bets reported losses of $591 million and $1.4 billion, respectively. Balance Sheet
As of Jun 30, 2021, cash and cash equivalents, and marketable securities were $135.9 billion, up from $135.1billion as of Mar 31, 2021.
The company generated $21.9 billion in cash from operations in the second quarter compared with $19.3 billion in the first quarter. It spent $5.5 billion on capex, netting a free cash flow of $16.4 billion in the reported quarter. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 15.39% due to these changes.
Currently, Alphabet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Alphabet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.