Google's parent company Alphabet (GOOG 1,257.16, +51.66, +4.29%, GOOGL 1,267.28, +56.28, +4.65%) is trading at
an all-time high after the company beat second quarter estimates on the top and
bottom line yesterday afternoon.
The biggest concern investors had going in to the print was the rise of Google's Traffic Acquisition Costs (TAC). TAC is a critical cost of revenue that Google makes to affiliates or partners to direct traffic to its website. TAC is on the rise as more searches are performed on mobiles devices and more ads are served programmatically. First quarter advertising revenue grew 24%, but investors were spooked by TAC up 36%. Management said TAC will remain a headwind, but growth would slow going forward.
Last night, Google reported TAC up 26%, a notable slowdown sequentially. Management reaffirmed TAC would remain a headwind but growth would slow going forward. Paid Clicks on Google properties grew 58% year/year while the cost-per-click fell 22%.
Total second quarter revenue grew 26% as advertising revenue grew 24%. Net income grew 32% to $8.27 bln, excluding the $5.1 bln fine from the European Commission regarding android competition law. Google plans to appeal that decision, as it stands by its business model.
Overall, Google is pleased with the momentum of its advertising business. Management said it was too early to comment on the impact of Europe's General Data Protection Regulation (GDPR).
YouTube continues to post very strong growth globally. In addition, the company is having success with both Chromebook laptops and the G Suite (Google's answer to Microsoft Office).
Alphabet stock climbed up 4% premarket, providing a nice boost to Nasdaq 100 futures. The company's market cap is just over $850 bln, which puts it just ahead of Microsoft and just behind Amazon, while Apple remains the largest publicly traded company.
Alphabet trades at 29x EPS estimates vs. 27x for Facebook and 25x for Microsoft.
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