Shares in Alphabet climbed around 5 percent in at the start of the week, as the company reported stronger advertising sales, beyond those than investors had expected. This meant that Alphabet earned $32.7 billion in revenue in the second quarter of 2018, which is a rise up 26 percent based on the same period last year.
According to Investing.com Senior Analyst, Haris Anwar, in conversation with Digital Journal, this signals that the company’s stock is bullish long term. According to Anwar: “Google’s increased spending is a positive development in the long run. Google’s traditional growth drivers via mobile search remain unchallenged, while YouTube and programmatic advertising show robust growth.”
The market signals are important, given that Alphabet continues to invest heavily. As Anwar states: “This is happening at a time when the company is aggressively investing in the future growth areas, such as driverless cars, the Internet of Things and cloud computing.”
Anwar recommends that those with Alphabet stock continue to hold in to their shares: “I don’t think the time is right to turn bearish on this great company, which is firing on all cylinders.”
The surprise to many is how Alphabet has seemingly absorbed the fine imposed by the European Union over the use of the Google web browser as the default search engine on Android smartphones. According to Anwar: “There are not many companies that can claim to be as powerful as Google’s parent Alphabet. The unparalleled superiority was on display last week after it was slapped with a record $5 billion fine by the European Union for stifling competition and its stock hardly budged.”
There remains a chance that Google will win the appeal, however the company has prepared to pay the fine and the rise in share price is with this taken into account. Anwar explains: “Google is appealing the ruling, but that money will remain in a holding account until a final decision is reached. In the short run however, earnings momentum remains strong.”
Google cannot stand still, however. “One of the key areas investors want to see an improvement is Google’s rising cost of doing business”, Anwar comments. “This spending surge is putting pressure on margins and making some short-term investors, who don’t have the patience for these investments to pay off, nervous.”
The analyst adds: “I don’t see that trend reversing anytime soon. The company will still build future growth capabilities and continue to diversify its revenue base away from digital advertising, which still accounts for more than 86 percent of total sales.”
