The strength of online advertising is proving once again its power in driving profits through the roof at Alphabet (GOOGLE), the parent company of Google, which demonstrated better-than-expected financial results for the second quarter of the year.

After a rather slow start to the year, Alphabet’s Q2 financial results drove stock prices up 8%, thereby easing investors’ concerns about some of the growth challenges Google’s advertising business was facing. 

The second-quarter revenue and earnings results are due to an increase in ad sales, a turn that took analysts by surprise. Alphabet posted revenue of $38.9 billion, up 19% as reported and 22% in constant currency, well ahead of the Wall Street consensus forecast at $38.2 billion.

The increase helps to put to rest concerns during the first quarter, when Alphabet managed a $1 billion revenue miss, which led to an outbreak of investor questions and the largest one-day sell-off in shares in seven years. 

On track for their biggest single-day increase in four years, Alphabet’s shares rose to a staggering $1,226.60, up by almost 9%, during after-hours trading yesterday. 

Alphabet has also authorised up to $25 billion in new stock buybacks, aiming to make use of its $121 billion in cash.

Alphabet generates about 85% of its revenue from sales of ad space and ad technology. 

Beyond Advertising

Google advertising has been the largest revenue driver since the company’s inception. 

Twenty-one years later, Alphabet’s revenue outside of advertising is yet to contribute significantly to the company’s turnover. But these results leave investors hopeful that new revenue streams could become a more significant contributor to the growth and overall revenue of the company.

Financial results show that Google revenue from products and services beyond advertising rose almost $1 billion compared to the same quarter last year, up to $6.2 billion from $4.25 billion. This revenue is derived from its product range such as the Pixel phones and Nest cameras, as well as from software and sales services from the Play Store and Google Cloud.

Google’s AI prowess is helping to set its cloud offerings apart from other storage offerings, such as Amazon’s AWS, which had a bad week itself, or Microsoft’s Azure. However overall, it’s unclear just how much of Google’s “other revenues” is cloud sales.

Alphabet CEO Sundar Pichai said in a statement: 

Our effort to build a more helpful Google for everyone brings countless opportunities to help users, partners, and enterprise customers every day.

From improvements in core information products such as Search, Maps, and the Google Assistant, to new breakthroughs in AI and our growing Cloud and Hardware offerings, I’m incredibly excited by the momentum across Google’s businesses and the innovation that is fuelling our growth.

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