Q2 Earnings: How Alphabet Crushed It

Executives walking into Google's headquarters entrance

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) -- parent company of Google -- just reported second-quarter results. Despite investors' high expectations going into the report, the online search juggernaut continued to impress. Alphabet delivered better-than-anticipated second-quarter results, driven primarily by search, YouTube, and its fast-growing Google "other" segment.

After the second-quarter earnings report was released on Monday, Alphabet's stock jumped nearly 4% in after-hours trading. The gain brought Alphabet stock's year-to-date return to 19%, crushing the S&P 500 's 5% gain during the same period. With the stock rising so sharply, Alphabet's second-quarter numbers are worth taking a look at.

Here are five key metrics from Alphabet's second-quarter earnings release for investors to grasp the company's strong performance recently.

1. Revenue increased 26%

Up 26% year over year, Alphabet's second-quarter revenue rose to $32.7 billion -- well above a consensus analyst estimate for $32.2 billion. On a constant currency basis, Alphabet's revenue was up 23% year over year.

Highlighting Alphabet's strong momentum, the company was able to achieve its impressive 23% year-over-year growth in constant-currency revenue on top of the same constant-currency revenue growth rate in the year-ago quarter.

2. Operating margin came in at 24%

When excluding a European Commission fine charged during the quarter that Alphabet is going to appeal, the company's operating margin was 24%. Though this was down from an adjusted operating margin of 26% in the year-ago quarter, it's higher than Alphabet's 22% operating margin in Q1 .

3. Adjusted EPS increased 32%

Profitability was arguably the star of Alphabet's second quarter. The company's earnings per share, when adjusted to exclude the impact of the European Commission fine, jumped 32%. The second-quarter adjusted earnings per share of $11.75 crushed a consensus analyst estimate for $9.66.

Alphabet said its outperformance in profitability was primarily because the pace of year-over-year growth in its traffic acquisition costs (TAC) for its Google properties (often referred to by management as "sites") decelerated during the quarter -- a trend management expects to continue.

"As frequently discussed, we do expect the Sites TAC rate to continue to increase year-on-year, reflecting ongoing strength in Mobile Search," explained Alphabet CFO Ruth Porat during the company's second-quarter earnings call, "albeit at a more moderate pace relative to the year-on-year increases experienced over the past several quarters."

4. Google "other" revenue climbed 37%

Alphabet's Google "other" revenue, which includes revenue primarily from cloud services, the Android app store, and hardware, didn't disappoint. Not only was the segment's 37% year-over-year increase in revenue impressive in its own right, but it represented an acceleration from the 36% growth in Q1.

5. Capital expenditures jumped 93%

This massive year-over-year increase in Alphabet's capital expenditures shows how aggressively management is investing in the company's growth opportunities. Management said significant investments are being made in search and ads "to benefit the user and advertiser experience," compute power to support YouTube's rapid growth, cloud services, and machine learning.

Alphabet's second-quarter capital expenditures were about $5.5 billion -- up from approximately $2.8 billion in the year-ago quarter.

Alphabet's second-quarter results reinforce what makes the Google parent such a great investment. The quarter's results show a rapidly growing market leader investing aggressively in promising areas likely to fuel further strong growth for years to come.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares and C shares). The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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