Google parent Alphabet (NASDAQ: GOOGL, NASDAQ: GOOG) delivered a phenomenal second quarter, soundly beating expectations thanks to growing online activity and strong advertiser spending.
Revenue came in an astonishing 62% higher year-on-year at $62 billion. That’s an impressive 10% ahead of consensus, at $56 billion.
Of course, these figures compare with a weaker prior year – when times were far more trying for the world-renowned tech firm as the pandemic swept across the globe.
But with businesses like YouTube continuing to shine, and the world approaching its new normal, things are looking good so far.
“Rising tide” lifts all boats in second quarter
Speaking at Alphabet’s earnings call, chief executive Sundar Pichai celebrated the “rising tide of online consumer and business activity” in Q2.
This led to a record-setting quarter. Partners earned more than ever before from the company’s network. Plus, the company sent more traffic sent to third party websites than any previous year in its history.
Earnings hit $27.26 per share, more than twice the prior year’s $10.13 and well ahead of the predicted $19.14 per share.
But, despite all this success, it is worth noting that last year marked the first ever revenue decline in Alphabet’s Ads business as a result of Covid-19.
Chief financial officer Ruth Porat highlighted that “lapping the impact of Covid on our business” contributed to a comparatively stronger revenue performance.
YouTube Shorts hits milestone; platform reach rivals TV
Video platform YouTube was a standout Q2 performer, with YouTube ads revenue surging more than 75% to $7 billion.
YouTube Shorts – a short-form video option for creators seeking to film quick videos on their mobile phones – has also proven successful. In fact, YouTube Shorts recently achieved a major benchmark, surpassing 15 billion daily views.
During the earnings call, senior vice president and chief business officer Philipp Schindler noted YouTube’s massive reach. He cited Nielsen’s Total Ad Ratings Reach, which reported that “on average, 70% of YouTube’s reach was delivered to an audience not reached by the advertiser’s TV media” from Q4 2018 to Q4 2020.
Schindler went on to add that:
“YouTube’s reach is becoming increasingly incremental to TV, and this audience dynamic is a huge win for brands.”
He highlighted Nielsen’s finding that US advertisers who shifted just 20% of spend from TV to YouTube achieved animpressive 25% jump in total campaign reach within their target audience. At the same time, advertisers cut cost per reach point by close to 20%.
Investment remains a key priority
After a strong FX tailwind in Q2, Alphabet forecasts “a more muted tailwind to revenues” according to Porat, as the year wears on and the beneficial effect of lapping Covid falls away.
Google Play revenue will face headwinds as it compares to the higher level of engagement induced by the pandemic.
Play revenue will also take a hit from the fee structure change introduced at the start of July. The firm cut commissions for developers using its store to 15% from 30% – a similar move to Apple’s (NASDAQ: AAPL) App Store fee cut late last year.
Alphabet plans to continue Google Services investment going forward. And, Porat noted, headcount additions are forecast to be seasonally higher in Q3 as new graduates come on board. Sales and marketing expenses will be more H2 weighted as well, supporting holiday season product launches.
After Google Cloud revenue shot up 54% in Q2, the focus for Google Cloud remains revenue growth. The plan is to keep up aggressive investment in response to this growing opportunity, with more and more businesses moving to the cloud.
The company did not make numerical productions for the year ahead. However, consensus among analysts is for Q3 revenue of $63 billion.
Share price continues to climb as tech giants still in favor
Alphabet’s shares come in three flavors: A, B, and C. Of these, only two classes are listed – A shares (GOOGL) and C shares (GOOG).
The company’s founders and peers privately own all B shares, which have more voting rights (10 votes per share).
A shares are nearly 3% higher since July 27, when the company results were announced. Year-to-date, A shares have climbed an impressive 57%. C shares, meanwhile, are up 0.6% since the Q2 release and 60% year-to-date.
The price rise comes amid a surge in FAANG stock interest. FAANG is an acronym for Facebook (NASDAQ: FB), Amazon(NASDAQ: AMZN), Apple, Netflix (NASDAQ: NFLX) and Google.
These kinds of high-profile tech sooks have grown all the more appealing as a result of the pandemic. The general uncertainty has pushed investors towards companies they see as better-prepared to weather Covid’s storms.
Outlook
There are clear signs that things are approaching a new normal over at Alphabet, with the company starting a voluntary return to offices in California.
Workers will have more flexibility when it comes to how and where they work, going forward. This echoes comments from other tech majors like Facebook – which has said staff can continue remote working even after Covid.
The company sees itself, Schindler said, as “a partner to re-accelerate growth as the world begins to reopen” – which the rise advertiser spending supports.