Google Inc.’s (NASDAQ/GOOGL, GOOG) share price jumped up more than 14.7% on Friday July 17th. Why? The search engine giant just reported its second quarter earnings.
Google reported its second-quarter financial results after the closing bell on Thursday July 16th. Revenue grew 11% year-over-year to $17.7 billion. Excluding exchange rate fluctuations, growth was an even better 18%. (Source: Google, July 16, 2015.)
Adjusted net income came in at $4.8 billion, 17.7% higher compared to same quarter last year. This translated to adjusted earnings of $6.99 per share, beating analyst’s estimate of $6.70 per share.
Investors rushed towards Google stocks after the cheerful earnings report. On Friday morning, the company’s class-A shares surged 14.83% to $691.00, while its class-C shares jumped 13.82% to $659.97.
The company’s advertising business grew rapidly in the second quarter of 2015. Aggregate paid clicks surged 18% year-over-year. Paid clicks on Google websites increased 30% year-over-year.
The performance of YouTube has been particularly strong in the second quarter of 2015. Watch time on YouTube surged an impressive 60% year-over-year—the fastest growth rate in two years. Moreover, people increased watching YouTube on mobile devices, with mobile watch time more than doubling year-over-year.
The U.S. turned out to be the fastest-growing market for Google—revenue increased 16% year-over-year to $8.0 billion. In the U.K., growth was a more modest four percent at $1.7 billion. For the rest of the world, revenue grew eight percent to $8.0 billion. Note that growth in foreign markets was held down by currency headwinds. On a constant currency basis, growth was even higher. (Source: Seeking Alpha, July 16, 2015.)
The company also generated solid cash flow in the period: $7.0 billion in operating cash flow and $4.5 billion in free cash flow. By the end of the second quarter, Google had a cash balance of approximately $70.0 billion.
The big jump in stock price was mostly because there had been many doubts on how Google would perform in today’s rapidly-changing internet industry. And now, the doubts are cleared.
Previously, investors were uncertain whether Google’s search service would continue to do well when users were switching to mobile internet. But according to Omid Kordestani, Senior Vice President and Chief Business Officer at Google, “More Google searches now take place on mobile devices than on computers in ten countries, including the U.S. and Japan, two of our largest markets.” Moreover, “30% of mobile queries are related to location and our efforts around local search are helping consumers to find relevant information fast.”
YouTube was also loved by mobile users. “On mobile alone, YouTube reaches more 18 to 49 year olds in the U.S. than any U.S. cable network,” said Kordestani. “And the number of users coming to YouTube, who start at the YouTube homepage similar to the way they might turn on their TV is up over three times year-on-year.” Moreover, the average viewing session on mobile devices was up more than 50% year-over-year.
YouTube’s growing popularity also brought plenty of advertising opportunities. In the second quarter of 2015, the number of advertisers with video ads on YouTube increased more than 40% year-over-year. Moreover, among the top one hundred advertisers, average spending per advertiser surged 60% year-over-year.
Google is doing very well in an increasingly competitive landscape. Competitors, on the other hand, have not been so fortunate. Twitter Inc.’s (NYSE/TWTR) Chief Executive Officer Dick Costolo abruptly resigned last month amid growing frustration with the company’s slow user growth and sluggish advertising revenues. Yahoo! Inc. (NASDAQ/YHOO) has also been facing difficulties, with its stock price dropping more than 20% since the beginning of this year. As for Google, solid and consistent growth has built itself a solid reputation among investors. If growth further continues, so will its stock price.