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Alphabet’s business keeps chugging with a big second quarter

ICE Graveyard 28/07/2016 Matthew Lynley

While Alphabet’s core advertising business has often been questioned as the net value of its ads has been in decline, there’s one thing that’s hard to argue — it’s still one of the biggest technology businesses in the world, and it once again showed that.

Alphabet reported a second quarter that continued tech’s hot streak today, handily beating Wall Street’s expectations and boosting its shares by another 5%. Google reported earnings per share of $8.42 on revenue of $21.5 billion. Analysts were expecting earnings of $8.03 per share on $20.76 billion in revenue. (Again, that 5% may seem small, but that’s adding tens of billions in value to the company.)

For the past year, Alphabet has been nipping at Apple’s heels. At moments Alphabet has overtaken Apple as the most valuable company in the world. It’s an interesting phenomenon given the companies are still quite different, but shows how these large companies are on a slight convergence pattern. Alphabet is a software and services company that’s dabbling in hardware in an attempt to diversify its revenue. Apple, a hardware company, is making a strong push into its services to do much the same.

And, to no surprise, both companies continue to print money — yet both are in an interesting position in where their traditional businesses are being challenged. While Apple’s iPhone sales slow, Google’s cost-per-click — a key metric of performance for its ads — continues to decline. That means the value of each ad, the backbone of its business, is starting to drop off and it has to find a way to replace that with a larger volume of ads on mobile devices.

In other words, the situations and challenges both companies face as the two biggest technology companies in the world aren’t all that different. Google, while up dramatically on the year, has faced a rocky couple of months, much like Apple. For Google, the upstart that is causing it to face a bit of an existential crisis is Facebook — which has locked down an incredibly successful mobile advertising strategy, while Google’s is still a perpetual work in progress.

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