HEY, THIS BYTES!

Alphabet declines despite strong Q2

Shares of Google parent Alphabet Inc. fell 3.1 percent in after-hours trading on Monday, despite that the tech giant posted second-quarter results that beat Wall Street expectations.

Alphabet’s results were even more impressive because its forecast-crushing profit of $5.01 per share came after the company deducted the $2.74 billion, or $3.89 a share, fine levied by the European Union after it found its Google search engine favored its own shopping services above others in search results. Wall Street expected profits of $4.49. Revenue grew 21 percent, to $26.01 billion — surpassing estimates of a 19 percent rise.

In addition, paid clicks rose 52 percent compared with the same period last year.

If there were worrisome parts of the earnings report, they were a drop in cost per click and a rise in traffic acquisition costs.

Cost per click — the amount advertisers pay each time someone clicks on an ad — fell 23 percent from last year.

Traffic acquisition costs, or TAC, rose 28 percent in the quarter, to total $5.1 billion.

“We do expect TAC costs to increase,” Chief Financial Officer Ruth Porat told analysts and reporters on a conference call.

The TAC increase and the EU fine reduced the company’s operating margin to 16 percent from 28 percent in the year-earlier quarter, prompting Brian Wieser of Pivotal Research to write, “Margin erosion was a modest negative for the quarter.”

The results weighed on Alphabet stock, which had risen by $7.42 in regular trading, to close at $980.34 per share.

But it then gave up nearly 30 points within two hours of the company’s an- nouncing the results.

The 52 percent rise in aggregate paid clicks generated advertising revenue of $22.7 billion — enough to account for nearly 90 percent of Alphabet’s business.

“We’re delivering strong growth with great underlying momentum, while continuing to make focused investments in new revenue streams,” said Porat.

Porat cited Google’s burgeoning cloud business as being a driver of those “other revenues,” which increased to $3.1 billion in the quarter from $2.2 billion last year.

Alphabet continued to monetize YouTube — selling more ads on the video streamer.

“YouTube is scaling really well globally… like search,” said Chief Executive Sundar Pichai.

On Monday, Pichai was added to Alphabet’s board.

As for the advertiser boycott of YouTube — punishment for embedding ads in deplorable content — Credit Suisse reported that money withheld from the platform in the first quarter had shifted back in the second.

Perhaps another concern for investors is marketing expenses.

Porat said she expected those costs to increase in the second half as Alphabet looks to expand its cloud business.