Alphabet is up +3% after-hours today after reporting excellent Q2 results. Revenue grew +23% year-over-year (on a constant currency basis) while adjusted earnings grew +32%. This put the company's revenue and earnings +1% and +22% above analysts' estimates, respectively.
The strong quarter was driven by outsized sales growth for Google's core properties (e.g. Google Search, Google Maps, etc), which drove revenue upside and flowed through to better-than-expected earnings. The detractor in the quarter was the "Other Bets" segment (e.g. Google X, Nest), which performed slightly weaker than expected.
The key metric that positively surprised us this quarter was paid clicks.
When you click on one of the ads Google places in/around its core properties (e.g. top of Google Search or Google Maps results), Google generates ad revenue from that click. Paid clicks grew an incredible +58% year-over-year, better than the market's +49% estimate.
These results suggest that advertisers continue to generate strong returns on their ad investments with Google.
"Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet."
CFO Ruth Porat
Consistent improvement in its ad targeting & measurement tools, along with disciplined cost controls, resulted in yet another strong quarter for GOOG. Our thesis continues to play out as expected.
We believe the stock is still very reasonably priced given its growth trajectory, profit margin expansion, and free cash flow generation.