Why Alphabet shares fell 5% after earnings


What happened

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) The shares are worth $ 1 trillion again, and that’s not good news.

Before earnings came out yesterday (after the close of trading), the internet search giant was trading at about $ 1,500 a share and sporting a market capitalization of $ 1.05 trillion. Today, investors are selling the shares, which continue to drop 4.5% at 1:30 pm EDT, and shares of the Google parent have returned to the $ 1 trillion level.

The white arrow abruptly descending on top of a red-battered ticket screen.

Image source: Getty Images.

And that

And yet Alphabet didn’t even lose the profits yesterday. That hit.

As for earnings, analysts had predicted that Alphabet would earn just $ 8.21 per share on sales of $ 37.4 billion. Alphabet topped those numbers with a stick, earning $ 10.13 in sales of $ 38.3 billion.

So why is the stock down today? Well, for starters, that income “bump” Alphabet reported last night was somewhat pyrrhic. Yes, on the one hand, it was better than expected. But it still represents a 2% decrease in revenue from the second quarter of last year, the first time Alphabet never reported a decrease in income from his business.

Also the number of winnings. Alphabet outperformed earnings, but did so by reporting 29% less GAAP earnings in the second quarter of 2020 than it was in the second quarter of 2019.

Now what

However, don’t count Alphabet just yet. Amid all the bad news, there was also good news to report. Google’s search revenue may have declined, but YouTube’s advertising revenue was up 6%. Alphabet’s cloud computing business also, although not as large as that of some of its rivals, grew 43% in the quarter.

Meanwhile, despite the drop in GAAP earnings, with rising operating cash and falling capital spending, Google generated a stellar free cash flow of $ 8.6 billion in the quarter: 23% per above reported net income and up 32% year-over-year.

At around 32 times less than free cash flow at the moment, Alphabet’s shares may not be cheap, but it is still an immensely profitable company and is strongly increasing its cash.