Google Ads Continue To Drive Alphabet’s Top Line Growth

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Alphabet

Alphabet (NASDAQ:GOOG) announced its Q1 earnings on April 23, reporting a solid 26% increase in revenues to $31.1 billion. Much of the revenue growth came from Google’s core advertising segment, particularly on Google owned and operated properties such as Search, Gmail, Maps and YouTube. Google Properties revenues were up 26% to $22 billion, forming 70% of the company’s net revenues. In addition, Google Other Revenues, or revenues from selling hardware (Pixel), cloud offerings, and in-app purchases, was the fastest growing segment, with a 36% increase in revenues to $4.4 billion. Ad revenues from network partnerships were up 16% y-o-y to $4.6 billion for the quarter. However, cost of revenues and operating expenses were up significantly through the quarter, due to which operating income was up only 6% y-o-y to $7 billion. The impact of higher operating expense was offset by lower taxes and gain on equity securities led to a massive (~70-75%) increase in net income and EPS for the quarter.

Based on the recent results and market trends, we have revised our forecasts for Alphabet for the full year. We expect Alphabet to maintain its revenue growth trajectory, and forecast the company’s margins to return to 2015 and 2016 levels after comparatively low margins through 2017. We have summarized our expectations for Alphabet’s 2018 results on our interactive dashboard platform. You can change expected segment revenue and net margin figures for Alphabet to gauge how changes will impact its expected EPS for the year. Our forecast for the EPS for the full year is about in line with consensus estimates.

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