Alphabet Earnings Miss Doesn’t Change Our View

Top line results for the full company were solid with 17% revenue growth (21% on a constant currency basis) driven by strong growth across all geography segments (U.S. up 21%, U.K. up 15% excluding foreign exchange, and Rest of the World up 14% excluding foreign exchange). Total operating margin was flat at 26% as increased traffic acquisition costs at Google were offset by improved operating expense efficiency. Within the Google segment, revenue growth of 17% was driven by 20% growth at Google Sites, partially offset by slower growth at Network Members (3%). Paid click volume increased 29% versus last year but cost-per-click fell 9%. We expect this trend will continue as ad inventory increases over time. Mobile continues to grow as other revenue improved 24%. We believe the investment in Android will pay off not only in driving mobile search, but also in other revenue streams such as the Google Play store. Within Other Bets, revenue grew 108% to $166 million primarily via Nest, Fiber and Verily (life sciences) divisions. Many of Other Bets businesses are in prerevenue stage and many are moonshots which may never generate revenue.

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