Alphabet Q2 18 – Fine? What fine?

EU issues brushed aside.

• Alphabet contemptuously brushed aside the regulatory gadfly when it reported excellent Q2 18 results where mobile maturity is having margin benefits.
• Q2 18 revenues-ex TAC / Adj-EPS were $26.24bn / $11.75 well ahead of consensus estimates at $25.55bn / $9.54.
• The main reason for the strong performance on profitability was a big improvement in gross margins thanks to traffic acquisition cost (TAC) growing much more slowly this quarter.
• These are the payments that Google makes to third parties like Apple, handset makers and operators in return for the traffic that their devices, services and websites generate for Google’s services.
• For the last 12-18 months, this has been growing as a percentage of sales as mobile traffic has been the main generator of growth.
• It is still growing, but this quarter a higher proportion of traffic went to Google’s own properties such as YouTube where Google pays no TAC.
• This is also a clear sign that mobile is beginning to mature as stable TAC rates are indicative of the expectation that mobile will be slowing down and falling into line with the rest of Alphabet in general.
• Against this mighty performance, the EU’s attempts to bring Alphabet to heel look like a sideshow.
• Furthermore, I think the EU has failed to demand the one remedy that could make a difference (see here) meaning that very little is going to change.
• The net result is that the outlook for Alphabet remains good and of all the advertising-driven ecosystems out there, this is the one that is going to fare the best.
• Consequently, against the likes of Facebook, Twitter, Snap and so on, Alphabet is faring well and looks set to continue to do so.
• If one wishes to remain outside of the data privacy issues swirling around this companies at the moment, privacy advocate Apple is the one place to go.

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