Wall Street finally let Google out of the doghouse

Google is out of the doghouse.

After whiffing in the first quarter, parent company Alphabet delivered rock-solid Q2 earnings on Thursday, ballooning the stock nearly 5% and getting Wall Street back on the bandwagon.

The company’s core advertising business grew nicely, as did its fledgling enterprise play.

If adjusted for foreign exchange rates, its year-over-year revenue growth saw its highest rate in five years, as did its US growth (both 25%).

“How many other almost $100b revenue companies are accelerating growth rates to their strongest level in years?” Macquarie’s Ben Schachter asks in a note to investors Friday morning. “Simply stated, Google’s core advertising business is gaining share from virtually everyone and its management team is containing costs better than expected.”

While last quarter’s earnings whipped up a froth of doubt that Google’s growth rates could withstand the switch to mobile and increasing competition from Facebook, Q2 shot down the naysayers.

“Stepping back from the metrics, Google has been in the investor doghouse for the past three months following the 1Q EPS miss and concerns about decelerating growth rates in 2016,” writes Deutsche Bank’s Ross Sandler, “These results go a long way to answering the critics.”

Meanwhile, Alphabet’s “Other Bets,” like hardware maker Nest, life sciences company Verily, and super-fast internet provider, Fibre, still haven’t shown signs that they will be making money any time soon. But with discipline exhibitied throughout the balance sheet, investors don’t really mind.

From Schacthter (emphasis ours):

“The bottom line is that in some ways, Google remains a one-trick-pony: it can target advertising better than anyone else. However, it turns out that being able to target ads better than anyone else is one of the greatest single tricks that any business has ever developed. Given its ability to generate cash, attract talent and, most importantly, make big long-term bets, we think investors would be wise to stick with the story and wait for it to come up with its (likely AI-inspired) next trick.

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