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Alphabet (GOOGL) Q3 Earnings Beat Estimates, Revenues Rise Y/Y

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Alphabet’s (GOOGL - Free Report) third-quarter 2021 earnings of $27.99 per share surpassed the Zacks Consensus Estimate by 21.01%. The figure surged 70.7% year over year and 2.7% sequentially.

Revenues of $65.1 billion increased 41% year over year (39% at constant currency). The figure rose 5.2% from 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 $53.6 billion, which outpaced the consensus mark by 3.5%. The figure rose 41.1% and 5.2% from the year-ago quarter and the previous quarter, respectively.

TAC of $11.5 billion was up 40.8% year over year and 5.2% sequentially.

Top-line growth was driven by the solid momentum across the company’s search, advertising and cloud businesses. Also, growing momentum across its Other Bets segment contributed well.

The company’s growing investments in AI and the expanding cloud services portfolio, 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.

Coming to the price performance, Alphabet has returned 55.6% on a year-to-date basis compared with the industry’s rally of 36%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Top-Line Details

The company reports revenues under Google Services, Google Cloud and Other Bets.

Google Services

Revenues from the Google services business increased 40.7% year over year to $59.9 billion, accounting for 91.9% of quarterly revenues.

Under the services business, search revenues from Google-owned sites increased 43.9% year over year to $37.9 billion.

YouTube advertising revenues grew 43% year over year to $7.2 billion, while Network advertising revenues increased 39.8% to $7.9 billion.

Total Google advertising revenues grew 43.2% year over year to $53.1 billion and accounted for 81.6% of total revenues.

Google Other revenues — which consist of Google Play and YouTube non-advertising revenues — were $6.7 billion for the third quarter, up 23.3% year over year.

Google Cloud

Google Cloud revenues rose 44.9% year over year to $4.9 billion, accounting for 7.7% of the quarterly revenues.

Other Bets

Other Bets’ revenues were $182 million, up 2.2% year over year, accounting for 0.3% of total third-quarter revenues.

Alphabet Inc. Price, Consensus and EPS Surprise

Alphabet Inc. Price, Consensus and EPS Surprise

Alphabet Inc. price-consensus-eps-surprise-chart | Alphabet Inc. Quote

Operating Details

Costs and operating expenses were $44.1 billion, up 26.1% year over year. As a percentage of revenues, the figure contracted 800 bps from the year-ago quarter.

The operating margin was 32.3%, which expanded 800 basis points (bps) year over year. Segment-wise, Google Services’ operating margin of 40% expanded 610 bps from the prior-year quarter.

Google Cloud and Other Bets reported losses of $644 million and $1.3 billion, respectively.

Balance Sheet

As of Sep 30, 2021, cash and cash equivalents, and marketable securities were $142 billion, up from $135.9 billion as of Jun 30, 2021.

The company generated $25.5 billion in cash from operations in the third quarter compared with $21.9 billion in the second quarter.

It spent $6.8 billion on capex, netting a free cash flow of $18.7 billion in the reported quarter.

Zacks Rank and Other Stocks to Consider

Currently, Alphabet carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Lam Research (LRCX - Free Report) , Coupa Software, Inc. (COUP - Free Report) and Trimble Inc. (TRMB - Free Report) . All three companies currently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term earnings growth rates of Lam Research, Coupa Software and Trimble are pegged at 17.01%, 24.28% and 10%, respectively.