01—Abstract
Summary
Summary of the 8-K filed July 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Alphabet reported second-quarter 2024 results (quarter ended June 30, 2024) that were strong on the top line and in profitability.
Revenue rose 14% year over year to $84.7 billiona (15% in constant currency, which is a non-GAAP measure), led by Google Search & other, which grew 14% to $48.5 billion, and Google Cloud, which grew 29% to $10.3 billion and for the first time exceeded $10 billion in quarterly revenue and $1 billion in operating profit. Operating income increased 26% to $27.4 billion, lifting operating margin to 32% from 29%. Net income rose 29% to $23.6 billion, and diluted EPS was $1.89 versus $1.44.
Note that EPS and net income were boosted by roughly $463 millionb net after-tax from non-operating items, including a $714 million loss on equity securities partly offset by a $128 million reversal of accrued performance fees. Cash generation and capital spending were the key watch items. Operating cash flow was $26.6 billion, but capital expenditures on property and equipment nearly doubled year over year to $13.2 billion, bringing non-GAAP free cash flow to $13.5 billion for the quarter.
Property and equipment, net, grew to $151.2 billionc from $134.3 billion at year-end 2023, reflecting the AI infrastructure build-out that management identified as a priority. Alphabet returned $15.7 billion through buybacks and paid $2.5 billion in dividends during the quarter, and it declared a $0.20 per share quarterly dividend payable September 16, 2024. Total cash, cash equivalents, and marketable securities declined to $100.7 billion from $110.9 billion, while total debt was essentially flat at about $13.2 billion of long-term debt.
Headcount fell slightly to 179,582 from 181,798 a year earlier. Management said it is re-engineering the cost base to create investment capacity, which is reflected in the decline in General and administrative expense (down 9%d year over year).
Research and development spending rose 12% to $11.9 billion. Investors should monitor whether the strong revenue growth can keep pace with the rapid rise in capital expenditures and whether Cloud profitability continues to scale.
02—Key points
Key Highlights
- Revenue grew 14% year over year to $84.7 billion (15% constant currency), with Google Search & other up 14% to $48.5 billion and YouTube ads up 13% to $8.7 billion.
- Google Cloud revenue rose 29% to $10.3 billion and crossed $1 billion in quarterly operating income for the first time, with operating income of $1.17 billion versus $395 million a year earlier.
- Operating income increased 26% to $27.4 billion, expanding operating margin to 32% from 29%.
- Diluted EPS of $1.89 (up from $1.44) and net income of $23.6 billion (up 29%); results include a net $463 million benefit from unrealized equity securities losses and a performance fee reversal, which should be considered when assessing core earnings.
- Capital expenditures on property and equipment nearly doubled to $13.2 billion, reducing non-GAAP free cash flow to $13.5 billion despite operating cash flow of $26.6 billion.
- Returned $15.7 billion through share repurchases and $2.5 billion through dividends in the quarter; declared a $0.20 per share quarterly dividend payable September 16, 2024.
- Total cash and marketable securities declined to $100.7 billion from $110.9 billion at year-end 2023, while headcount decreased to 179,582 amid ongoing cost re-engineering.
03—Questions
Frequently Asked Questions
How did Alphabet's core advertising business perform in Q2 2024?
Google advertising revenue grew 11% to $64.6 billion. Google Search & other rose 14% to $48.5 billion, while YouTube ads grew 13% to $8.7 billion. Google Network revenue declined 5% to $7.4 billion, reflecting continued pressure in that partner-driven channel.
Why did capital expenditures rise so sharply, and how does it affect free cash flow?
Purchases of property and equipment rose to $13.2 billion from $6.9 billion a year earlier, driven by investment in AI infrastructure and data centers. Because operating cash flow of $26.6 billion did not grow as quickly, non-GAAP free cash flow was $13.5 billion for the quarter. Management has framed this spending as support for its highest-growth opportunities, so investors should watch whether these investments translate into sustained revenue growth.
Are the reported earnings per share figures representative of underlying operating performance?
Not entirely. Net income and diluted EPS included a $714 million loss on equity securities, partly offset by a $128 million reversal of previously accrued performance fees. Together these items reduced net income by about $463 million and EPS by $0.04. Other income can be volatile, so operating income ($27.4 billion) is a cleaner measure of core profitability for the quarter.
What is the dividend and how does it compare with share repurchases?
Alphabet declared a $0.20 per share cash dividend on all three share classes, payable September 16, 2024 to holders of record as of September 9, 2024. In Q2 the company paid $2.5 billion in dividends and repurchased $15.7 billion of stock, so buybacks remain the larger form of capital return.
What did Google Cloud's first $1 billion operating profit quarter signal?
Google Cloud revenue grew 29% to $10.3 billion, and operating income reached $1.17 billion, up from $395 million a year earlier. This suggests improving scale efficiency in the segment, though the company still allocates significant AI-related costs to Alphabet-level activities, so segment margins may not fully reflect the total cost of AI development.
04—Continue