Alphabet Inc. is scheduled to announce its second quarter financial results on Thursday after the market close. This will mark the company’s third time presenting its performance on a segment basis, therefore, now is a great time for investors to reconsider what to expect from the internet giant.
The company did not perform well in the previous quarter, as shares declined nearly 5 percent the day after its first quarter report. Alphabet technically fell short of analysts’ expectations, despite CFO Ruth Porat calling it a "tremendous start to the year."
"We're thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long-term growth," she added.
Alphabet does not provide specific quarterly financial forecasts, but analysts’ consensus estimates call for second quarter revenue to gain around 17.1 percent year-over-year to $20.76 billion. The projected increase in revenue will lead to a 14.9 percent hike in earnings per share to $8.03.
Google is Alphabet’s main segment, and includes results from Search, Android, Maps, Chrome, YouTube, Google Play, Gmail, Google Apps, Commerce, Cloud, and hardware products. With the exception of Apps, Commerce, Cloud and hardware – these sub-sectors basically generate revenue from advertising. In the previous quarter, ad revenue rose 16.2 percent year-over-year to $18.02 billion, depicting more than 88.9 percent of Alphabet’s comprehensive sales.
In addition, ad revenue from Google’s own sites grew 20.1 percent to $14.33 billion during the first quarter, while revenue from Network Members’ sites jumped 3.2 percent to $3.69 billion. Assuming this growth carried on to a similar cut in the second quarter, strength in mobile search will continue to represent a key driving factor.
The search giant’s results will also include revised statistics on cumulative paid clicks, as well as combined cost-per-click, which helps determine how much Google makes per ad. However, aggregate cost-per-click is likely to continue its decline, extensive growth in YouTube viewership has suggested greater contributions from the video platform’s TrueView ads, which is likely to monetize at lower rates as they approach consumers earlier in the purchase channel.
Three months ago, Google’s Other revenue soared 24 percent year over year to $2.1 billion, led by a mix of growth at Play, Cloud, Apps, and solid contributions from hardware products such as Chromecast and Nexus.
Alphabet’s Other Segments
Elsewhere in Alphabet, Other Bets consists mainly of early stage segments aimed at clearing up huge problems with a long-term mentality. These include Google Fiber, Verify, Calico, Nest, self-driving cars, and Alphabet’s X moonshot initiatives.
Earlier this year, Porat explained that "the majority of efforts within Other Bets are pre-revenue." Particularly, most Other Bets revenue to date has come from Fiber, Nest, and Verify. Overall, they are likely to remain unprofitable in the second quarter. In the previous quarter, revenue from Other Bets more than doubled to $166 million, however, it also recorded an operating loss of $802 million.
The operating losses were countered by the massively profitable Google machine, which gained an operating income of approximately $6.3 billion last quarter alone. However, each Other Bet has potential to turn into a significant financial contributor to Alphabet’s total results. Moreover, the increased transparency for investors is the reason why Alphabet restructured to start breaking out segment-based reports.
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