During the past week, Alphabet Inc (NASDAQ:GOOGL) came out swinging in the week ahead of its second-quarter earnings report, with a 2.2% run heading into Monday evening that had shares briefly retouching the $1,000 area. But despite quality Q2 results, the recent gains in GOOGL stock are evaporating (and then some) in after-hours trade.
The results were far from disappointing. Alphabet’s revenues came to $26 billion, up 21% year-over-year and better than expectations of $25.6 billion. Meanwhile, earnings of $3.5 billion, or $5.01 per share, were down 28% year-over-year, but still far better than estimates for $4.44 per share.
Weighing on Alphabet’s profits was a $2.74 billion fine from the European Commission that investors have known about for weeks. The organization claims that Google engaged in anticompetitive behavior with its online shopping sites.
Still, GOOGL stock — which has run up 26% year-to-date — was taken down a couple notches amid the less-than-perfect report.
Some other highlights of the quarter:
- Operating margin declined from 28% to 16%.
- “Other Bets” revenues improved from $185 million to $248 million — still a tiny portion of overall sales.
- Total traffic acquisition costs (TAC) as a percentage of ad revenues edged higher, from 21% to 22%.
- Cost per click declined 6% QoQ, and 23% YoY.
- Alphabet added nearly 9,000 employees over the past year.
- Google has been bolstering its YouTube platform, with the addition of 12 new TV shows for its premium Red Service. This brings the total to 37 shows.
- Sundar Pichai has been named to the board of directors.
- The company launched a personalized news feed for Android and Apple Inc.’s (NASDAQ:AAPL) iOS platform.
Technically speaking, this could be setting up as a potential buying situation for those looking for a slight discount on GOOGL stock.
If tonight’s losses stand Tuesday morning, that would knock shares down to the 50-day moving average at $970, which they reclaimed a couple weeks ago after breaching the average in June. Right below that is support at the 20-day MA, which rests around $960.
Should support hold, the Relative Strength Index (RSI) rests in positive but not overbought territory in the mid-60s. So resilience at the $970 level could be considered a buying opportunity for bullish traders/investors.
UPDATE: But how bullish should you be?
Looking Ahead at GOOGL Stock
As I’ve noted before here, the European Commission’s decision could pose some knotty issues for Alphabet. The fine was the largest in the organization’s history, indicating the seriousness of the matter. And this judgment came after a dogged seven-year investigation.
But money isn’t the issue here.
The decision instead may be an ominous sign that it will take further actions to limit or prevent the search giant from leveraging its powers in the continent, which would stunt its growth ramp. Moreover, other countries might be empowered by the ruling, which would prompt them to impose similar fines and put up more obstructions that would allow home-grown industries to thrive.
And yet, Wall Street doesn’t — and shouldn’t — seem too concerned about GOOGL stock.
In all other aspects, Alphabet is running on all cylinders. It’s still the leader in search, Android is still the dominant mobile operating system, Maps can be increasingly leveraged for advertising opportunities and YouTube is expanding. Those apps — as well as Chrome, Google Play and Gmail — all have user bases of 1 billion-plus.
Don’t forget, too, that GOOGL stock is a value play here, too. Shares trade at roughly 24 times projected earnings, which is more than reasonable given that the company continues to grow at 20%-plus and remains highly profitable.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.