Alpha Does Better

Good Alphabet results

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What's going on?

Google parent Alphabet reported better-than-predicted second-quarter results on Thursday, helping its stock initially rise 9%. That’s one way to hit the top of investors’ search results.

What does this mean?

Google’s ad revenue growth slowed much faster in the first quarter than investors were expecting, partly as a result of tweaks to YouTube’s algorithm. But despite further tinkering at YouTube, last quarter’s ad revenue – still the lion’s share of Alphabet’s total – came good, exceeding forecasts. And Alphabet’s costs, which include paying the likes of Apple to dish out its ads on mobile, didn’t rise as much as investors expected either, helping it beat profit estimates.

Why should I care?

For markets: You get a fine! You get a fine! You get a fine!

On Monday, Google reportedly agreed to pay a multimillion-dollar fine for unlawfully collecting American kids’ data on YouTube – to the very same regulator that dinged Facebook two days later. Such fines now appear to be par for the course for major US tech companies, but investors don’t seem too bothered: they continued to buy up Facebook’s shares before and after it reported better-than-expected results this week, and did the same with Alphabet’s on Thursday. Those investors might have breathed a sigh of relief that the advertising machine was back up and running – and that extra profit-boosting share buybacks were afoot.

Zooming out: Some clouds don’t have silver linings.

The UK’s biggest public tech company, Sage – used by over half of all British businesses to pay their workers – reported weaker-than-expected earnings on Thursday (its stock fell 10%). It’s struggling to adjust to the new normal across cloud-based software services: sacrificing one-off payments in favor of recurring income from subscriptions. Sage may be big news in Britain – and the cloud industry at large may currently be enjoying high growth – but it’s struggling to make headway when up against international powerhouses like Google, Microsoft, and Amazon.

Originally posted as part of the Finimize daily email.

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