Google parent Alphabet shattered estimates for second-quarter earnings, reported Tuesday.
Over the three months ending in June, the tech company raked in $61.88 billion, which is 62 percent growth over the $38.30 billion in the same quarter a year ago. The results trounced Wall Street estimates set out by Refinitiv, which expected $56.16 billion.
Earnings of $18.53 billion, or $27.26 per share, showed a nearly threefold surge over last year’s $6.96 billion, or $10.13 per share. Revenue after traffic acquisition costs was $50.95 billion.
The gains were not entirely surprising, since the year-ago quarter was dogged by a mushrooming pandemic that hobbled advertising and consumer spending. But apparently few predicted the scale of the gains since then, even with growing ad spend and online shopping.
Widespread vaccination efforts stoked hope of a return to normal life, spurring even more advertising to appeal to consumers who found themselves splurging.
“In Q2, there was a rising tide of online activity in many parts of the world, and we’re proud that our services helped so many consumers and businesses,” said Sundar Pichai, Alphabet’s chief executive officer. “Our long-term investments in AI and Google Cloud are helping us drive significant improvements in everyone’s digital experience.”
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Alphabet chief financial officer Ruth Porat laid out the numbers: “Total Google services revenues were $57.1 billion, up 63 percent. Google search and other advertising revenues of $35.8 billion in the quarter were up 68 percent, with broad-based strength across our business led, again, by strong growth in retail. YouTube advertising of $7 billion was up 84 percent, driven by brands followed by direct response.
“Network advertising revenues of $7.6 billion were up 60 percent driven by Ad Manager and AdMob; other revenues were $6.6 billion, up 29 percent primarily driven by growth in YouTube, non-advertising revenues, followed by hardware, which benefited from the addition of Fitbit revenues,” she said.
That momentum may matter even more, as uncertainty abounds with the emergence of new variants, like Delta, and waning growth of vaccination levels. As fears of a return to lockdown settle in, the focus on online business will likely only grow, not fall.
Clearly the standouts in these results were Google Cloud, whose $4.63 billion in revenue topped revenue estimates of $4.40 billion, and YouTube, which pulled in ad revenue of $7 billion and beat the $6.37 billion expected.
From Google’s point of view, shopping is a natural nexus point for the cloud business and its deep development in artificial intelligence, as well as for YouTube, in particular.
“[Retail] momentum remains strong,” said Philipp Schindler, chief business officer. “We’re continuing to build an open ecosystem that benefits both users and merchants. Last year, we removed financial barriers with three product listings and zero commission fees. This year, we’re removing integration barriers with Shopify, WooCommerce, GoDaddy and Square. Merchants can now on-board and show their products across Google for free. And our shopping graph is using AI to connect these products to the people who want them.”
The company counts more than 24 billion listings from millions of merchants, he said, adding that a third of total digital sales were fulfilled by stores in the first quarter. He also singled out YouTube as a powerful way for them to build awareness and pledged to “invest in new ways to help retailers through what is likely to be a long and uncertain recovery around the world.”
That includes focusing its AI tech to help drive better experiences for customers.
“Look, we want to make sure that when people come to Google, they are able to basically find the best products and prices available from, frankly, the widest possible range of merchants, and we’re making strong progress and to build leadership,” Schindler said. Then he explained the three phases that encompass the company’s planned retail trajectory.
Last year was about removing financial obstacles — making listings free and removing commission fees, which, he pointed out, gave merchants who combined free listings with shopping ads in the first quarter a 50 percent lift in clicks.
This year has been mainly about removing integration barriers, he continued, citing partnerships with Shopify, Square, Big Commerce, GoDaddy, WooCommerce and more. These deals make it easier to get into the Google ecosystem across search, shopping, image search and YouTube, and then make use of the company’s latest measurements and analytics tools, so retailers can better understand performance and pricing.
Now the tech giant is focused on making its products and user experience better.
“Maybe a cool example is how we’re using AR [augmented reality] to bring in-store experiences online, like with auto dealerships, and then letting users really try before they buy. We do this in cosmetics and apparel categories,” he said.
The company also offers a shopping graph that uses AI to show consumers relevant product listings and information while they search. “It will complete product experiences across Google Shopping, with lenses as one example.
“You can shop your screenshots or use your phone camera to find the dress or a pair of sneakers that caught your eye or whatever,” Schindler added, elaborating that the open retail ecosystem he mentioned before is intended to level the playing field for retailers. “We think there’s a lot of opportunity ahead, and I think those are our biggest areas of focus.”
Google’s poised to connect the dots and tighten the integrations across its broader search, Google Shopping and YouTube businesses. If it does so, it could turn Google and YouTube into even bigger shopping platforms. But that doesn’t come without risk — namely making Alphabet an even larger target for government officials who take a dim view of Big Tech’s influence and market power.
Notably, Alphabet’s report landed on the same day Apple revealed $21.7 billion in earnings and Microsoft disclosed $16.5 billion in profit. While Google handily surpassed its rivals, the collective numbers mean that altogether, the giants have a combined market value of $6.4 trillion.
Alphabet’s stock jumped more than 5 percent to $2,773 at one point in after-hours trading.
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