On today’s episode of the Tech Talk Tuesday podcast, Ryan McQueeney discusses Alphabet’s earnings report and explains why the company’s rampant spending in 2018 sets Google up for a life beyond its advertising business.
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Last night, Google parent Alphabet (GOOGL - Free Report) posted its latest quarterly financial results. The numbers were pretty positive. Adjusted earnings came in at $12.77 per share, beating the Zacks Consensus Estimate of $11.08 and improving nearly 32% from the year-ago period. Revenue, excluding traffic acquisition costs, was $31.8 billion, up 23% year over year and also ahead of estimates.
Alphabet notched impressive growth in its key segments as well. Its advertising business, which accounts for the majority of overall sales, surged almost 13%. The Google “Other” segment—a catch-all that includes Play, hardware, and cloud—improved roughly 31% from the prior-year period.
There were a few points of concern, however. Namely, investors raised an eyebrow over Alphabet’s spending in the quarter. Capital expenditures grew to $6.9 billion from just $3.8 billion in the comparable period, and the company’s headcount increased to 99,000 from just over 80,000 a year ago.
For its full fiscal 2018, Alphabet increased spending at its fastest rate in four years. This put a dent on margins and created questions about its profit stream. Some critics pointed out that its latest earnings beat was created from a $1.3 billion unrealized gain from a non-marketable debt security it held—a one-time occurrence, surely—for instance.
This debate is the subject of today’s Tech Talk Tuesday podcast. Ryan acknowledges the concerns that some investors have about Alphabet’s spending but ultimately argues that it is a necessary step toward a comfortable future for the company.
Taking management’s word that its spending was a result of “investing aggressively” in cloud and hardware, Ryan points out the merits of spending cash on growth while still in a position of strength. It’s remarkable that Alphabet is still seeing double-digit percentage growth in advertising, no doubt. But eventually that will plateau, and that’s when things like Google Cloud, Google Home, and even Nest will start to pay off.
Want to hear more of Ryan’s take on the future of Alphabet? Check out today’s show!
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