Google Shares Set for Best Day in 4 Years After Cloud, YouTube Help Q2 Blowout

Alphabet shares are set for their biggest single-day gain in four years Friday after the Google parent posted stronger-than-expected second quarter earnings last night as gains from YouTube ads and its burgeoning cloud business supported topline growth.
By Martin Baccardax ,

Alphabet Inc. (GOOGL) - Get Report shares are set for their biggest single-day gain in four years Friday after the Google parent posted stronger-than-expected second quarter earnings last night as gains from YouTube ads and its burgeoning cloud business supported topline growth.  

Google said earnings for the three months ending in June came in at $14.21 per share, up 21% from the same period last year and well ahead of the Street consensus forecast of $11.30 per share, Group revenues also surprised to the upside, following the group's first quarter disappointment, rising 19% to $38.9 billion and topped analysts' estimates of a $38.15 billion tally.

Google also said its costs were largely unchanged from the same period last year -- at around $29.8 billion -- even as its operating margin improved by 6% from the previous quarter to around 24%, a firmer-than-expected reading that suggests continued profitability. Google's cloud business, while only around a quarter of the size of Amazon Inc.'s AMZN, had an annual revenue run-rate of $8 billion. 

The strength we talked about here this quarter (in Google sites revenue) reflects the same underlying trends that we discussed previously," Alphabet CFO Ruth Porat told investors on a conference call late Thursday. "And overall as it relates to both Search and YouTube strength, I would just to add on YouTube revenue growth for YouTube was strong in the first quarter."

"In fact, we called it out as the second largest driver of revenue growth across Alphabet," she added. "And in the second quarter, YouTube was again the second largest contributor of revenue growth. And really pleased with the ongoing momentum that we're seeing here."

Google shares were marked 10.7% higher at the start of trading Friday to change hands at $1,257.67 each, a move that would be the biggest single-day gain in at least four years and extend the stock's 2019 advance to around 20.4%.

"Primary growth drivers continue to be mobile search, YouTube, and desktop search," said Canaccord Genuity analyst Maria Ripps. "Google introduced a number of improvements to its core search product, including a newly redesigned search page and the introduction of the Full Coverage feature to enhance the organization of news results."

"Cloud, which is now on an $8 billion run rate (~25% the size of AWS), is one of Alphabet's fastest growing businesses," Ripps added. "To further accelerate growth in this segment, the company has announced three new data centers and is continuing to ramp hiring in both sales and tech roles."

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