Technology giant Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) impressed investors earlier this week with strong second-quarter financial results. Revenue surged 26% year over year — especially remarkable since growth in the year-ago quarter was 21% year over year. Earnings per share increased 32% year over year when excluding the impact of a European Commission fine recorded during the quarter.
But there’s much more to Alphabet’s second quarter than revenue and adjusted earnings per share that exceeded consensus analyst estimates. Alphabet’s second-quarter earnings call, in particular, provided lots of useful insight into ways the search giant is investing in its future.
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Investing in nascent businesses
For any investors scanning Alphabet’s financial statements, it would be hard to overlook one glaring number: Capital expenditures for the quarter were $5.5 billion — up 93% year over year.
Of course, high capital expenditures can be a good thing when they’re made in the right areas. And Alphabet’s relentless growth over the years means the company has a good track record with making shrewd investments. Fortunately, Alphabet appears to be investing heavily in areas where it’s seeing rapid growth, including core areas like search, ads, and YouTube, as well as more nascent businesses:
“We’re also investing in new businesses that are growing at a rapid pace and have sizable compute needs, most notably Cloud,” said Alphabet CFO Ruth Porat.
She continued:
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Rapid growth in local mobile search
Mobile search continues to be key to Alphabet’s overall results. In terms of overall dollar growth during the quarter in Alphabet’s biggest segment, Google Sites, mobile search contributed more than any other driver. But one aspect of mobile search is seeing notable momentum: local mobile search, or search aided by location.
“Local mobile searches are growing faster than Mobile Search for us,” said Google CEO Sundar Pichai. “They have increased by almost 50% in the last year alone. We are continuing to invest in building a local experience that benefits merchants, users, and advertisers.”
In the coming quarters, Alphabet is better positioned than ever to capitalize on this trend. Local advertising campaigns, introduced just a few weeks ago, are specifically designed to increase foot traffic to brick-and-mortar locations. “You provide us with your budget, business locations, and creatives and we use machine learning to automatically optimize the ads to appear across our properties,” said Pichai.
With fast-growing capital spending and strategic investments in areas like machine learning and local mobile search, Alphabet is dead set on taking advantage of the growth opportunities in front of it — efforts that should help the technology giant’s strong growth persist for years.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.
