uploads/2018/09/GOOG-QR-PROFIT-MARGINS-8.png

What Drove Alphabet’s Margins in the First Half of 2018?

By

Updated

The reason behind the gap between Alphabet’s gross and other profit margins

Alphabet’s (GOOG) revenues improved by 26.0% to $63.8 billion in the first half of 2018. Continual strength from Google’s segments drove its revenue growth for this period.

Alphabet’s cost of revenues rose by 36.0% to $27.4 billion in the first half of 2018. The TACs (traffic acquisition costs) associated with the Google segments used 23.0% of revenues in the first half of 2018. The company’s cost of revenue margin rose from 40.0% in the first half of 2017 to 43.0% in the first half of 2018.

Its gross profit improved by 19.0% to $36.5 billion in the first half of 2018. Its gross margin declined from 60.0% in the first half of 2017 to 57.0% in the first half of 2018.

Article continues below advertisement

Operating expenses

Alphabet’s operating expenses increased by 34.0% to $26.6 billion in the first half of 2018. Research and development, sales and marketing, and general and administrative expenses drove the company’s operating expenses. The European Commission imposed a penalty of $5.7 billion in July regarding Google’s Android-related distribution agreements. 

The company’s operating expense margin rose from 39.0% in the first half of 2017 to 42.0% in the first half of 2018. These expenses led to a decline of 8.0% in Alphabet’s income from operations in the first half of 2018.

The company’s income from operations amounted to $9.8 billion in the first half of the year. The company’s operating margin fell from 21.0% in the first half of 2017 to 15.0% in the first half of 2018.

Its net income grew by 71.0% to $15.3 billion in the first half of 2018. The company’s net margin improved from 18.0% in the first half of 2017 to 24.0% in the first half of 2018. Its EPS increased by 70.0% to $21.70 in the first half of 2018.

Facebook (FB), Amazon (AMZN), and Netflix (NFLX) had net margins of 40.0%, 4.0%, and 9.0%, respectively, in the first half of 2018. Apple (AAPL) had a net margin of 22.0% in the nine months ended June 30.

Advertisement

More From Market Realist