Alphabet Q2 Revenue Beats Estimates as Cloud Sales Surge 82%

Free cash flow turns negative despite a 12th straight quarter of double-digit growth

Alphabet, Google's parent, reported second-quarter results on July 22 that beat market expectations for revenue and operating profit. Its cloud business continued to post rapid growth as the company stepped up investment in artificial intelligence infrastructure. The surge in capital spending, however, pushed quarterly free cash flow into the red.

SpaceX listing drives $99 billion valuation gain

Alphabet said second-quarter revenue rose 24% from a year earlier to $119.8 billion, topping the $116.9 billion analyst estimate compiled by LSEG.

The company extended its streak of double-digit revenue growth to 12 consecutive quarters.

Operating income increased 30% from a year earlier to $40.77 billion, while operating margin improved by 2 percentage points to 34%. Net income jumped 298% to $112.1 billion, and diluted earnings per share came in at $9.11, well above the market estimate of $2.89.

The surge in net income was driven largely by an accounting gain rather than an improvement in core operations. Alphabet recorded a $99 billion gain from the revaluation of unlisted equity securities it holds, sharply boosting pretax profit. The effect followed the July 12 Nasdaq listing of SpaceX, in which Google held about a 5% stake. Alphabet said the valuation gain added $6.26 to earnings per share. Excluding that item, operating EPS was about $2.85, roughly in line with market expectations.

Cloud leads growth

Google Cloud revenue rose 82% from a year earlier to $24.8 billion, leading overall growth. Operating income at the cloud unit more than tripled to $8.8 billion, increasing its contribution to profitability. In the earnings release, Chief Executive Officer Sundar Pichai said 90% of Fortune 100 companies are using Gemini Enterprise.

Revenue from Google Services rose 15% to $94.5 billion. Within that segment, Search and Other revenue increased 17% to $63.3 billion, while YouTube advertising revenue rose 13% to $11.1 billion. Pichai said popular AI features are driving growth in search queries. The company also said the Gemini app has 950 million monthly active users and that Gemini model API processing has reached 22 billion tokens per minute.

Second-quarter capital expenditures doubled from $22.4 billion a year earlier to $44.9 billion. Even so, cash flow from operations rose 41% to $39.1 billion. Quarterly free cash flow still swung to a negative $5.85 billion.

To fund the higher investment, Alphabet raised $30.5 billion through common stock issuance, $19.1 billion through convertible preferred stock issuance and $24.8 billion through bond sales during the second quarter. The scale of the external fundraising suggests the AI infrastructure investment cycle has yet to peak.

By region, revenue in the Americas rose 32% to lead growth. Europe, the Middle East and Africa posted a 15% increase, while Asia-Pacific rose 17%.

Alphabet also said its board approved a quarterly dividend of 22 cents a share for Class A, B and C stock in July. The dividend will be paid on Sept. 14.

Kim In-yeop, Silicon Valley correspondent, Hankyung.com, inside@hankyung.com