The reason why Google's second-quarter financial results exceeded expectations and the market response was slow

Even though Google's sales and profit increased in the second quarter, the market reaction was slow.

Alphabet has announced financial results for the second quarter of 2024. According to financial results, the company's total revenue for the second quarter was 84.7 billion40 million dollars, up 13.6% from the same period last year, which exceeded analysts' expectations of 84.3 billion70 million dollars. The adjusted profit per share was 1.89 dollars, up 31% or more from the same period last year, which also exceeded the forecast of 1.84 dollars.

The market response was “ups and downs,” with Alphabet stocks rising 2%, then falling 1%, then rising again, rising 3%, and ultimately still falling more than 1.6%.

First, advertising revenue from the Youtube platform fell below expectations, and the second quarter was 8.66 billion dollars, up 13% from the same period last year, and lower than the market forecast of 8.95 billion dollars, and the growth rate also slowed from the first quarter.

As a result, growth in the main advertising business, which is the pillar of Google's revenue, also slowed, and the year-on-year growth rate in the second quarter was 11.2%, which was lower than 13% in the previous quarter.

Next, Alphabet stated at the financial results briefing that there is a possibility that the number of employees will increase when considering the entry of new employees in the third quarter, where there is a possibility that the flow of profit expansion will be threatened. Furthermore, Alphabet's president Ruth Polat said,”Increased depreciation due to increased investment in technology infrastructureHe added that they are facing this risk.

As is well known, AI is the main cause of the rapid increase in capital investment by high-tech giants, including Google.

Melius Research analyst Ben Reitzes commented:

“The reaction to this financial results report is likely to be slow because there were comments which suggested a slowdown in the pace of profit margin expansion.”

“Considering the recent rapid increase in capital investment by Alphabet and major cloud computing companies, comments on depreciation and amortization costs when talking about EPS and gross margin should be closely watched, especially on Mag7, which includes Microsoft, Amazon, and Meta.”