Manage Alphabet Earnings to beat high expectations. The arrow is rising.

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Denis Charlet/AFP via Getty Images

Shares of Alphabet jumped in late trading on Tuesday, after the company smashed investor expectations, posting record quarterly revenue.

Google’s parent company reported second-quarter net income of $18.5 billion, or $27.26 per share, compared to net profit of $7 billion, or $10.13 per share, in the same period last year. Revenue rose 62 percent to $61.9 billion.

The consensus estimate on Wall Street was earnings of $19.35 per share on revenue of $56.2 billion.

CFO Ruth Porat attributed the company’s success to “rising online consumer activity” and “the broad power of advertiser spending.” The company reported $35.9 billion in search and other revenue, and $7 billion in YouTube advertising revenue — both of which beat investors’ expectations.

Traffic acquisition costs, or TAC, the fee Google pays to the likes of Apple (AAPL) for search deals, came to $10.9 billion in the second quarter.

Philip Schindler, Google’s chief business officer, said retail had the biggest impact on growing the company’s advertising business, and that travel, financial services, and media and entertainment were also “strong contributors.”

Alphabet was widely expected to have a strong quarter, in part because the first half of 2020 was poor for the digital advertising market. Amid concerns about the Covid-19 pandemic, many companies have cut advertising spending, slowing or reversing the growth of several technology companies including Alphabet.

“The numbers are insanely strong, in just about every segment of the business, and they’re accelerating,” said Mitch Rubin, chief investment officer at RiverPark Funds. On top of that, you have extraordinary expense control, which I think the market has been looking for for years.

But last year’s weak quarter meant investors had high expectations as Tuesday noon approached tech earnings. The digital advertising giants were expected to top estimates and issue bullish guidance.

Alphabet has not made a earnings release forecast. It is still too early to start making predictions, as markets reopen, and Covid-19 cases increase worldwide, Porat said on a conference call late Tuesday.

Aside from Alphabet’s advertising business, Google’s cloud computing segment posted a 50% increase in second-quarter revenue to $4.6 billion. The operating loss for the cloud segment was reduced to $591 million, from $1.4 billion a year ago. That loss was much lower than analysts had expected, though Porat said the company continues to aggressively run the business.

As Alphabet was trying to catch up with Amazon.com (AMZN) and Microsoft (MSFT) in the cloud business, investors expected Google Cloud to continue to lose significant money, Rubin said. He said that cloud computing is a high-margin industry, and if Google can turn its cloud segment towards profitability, it could boost the company’s profits.

“When you turn the cloud into profit, the company’s profits go up dramatically,” he said.

Alphabet gave investors another reason to cheer, saying that the board of directors gave the company the option to buy back Class A shares in addition to Class C shares that were part of an existing buyback program. In April, the company authorized an additional $50 billion buyback of Class C shares.

Alphabet shares rose 3.1 percent in after-hours trading. The stock closed down 1.6%, at $2,638, in regular trading Tuesday.

The Alphabet Index is up 51% this year, while the S&P 500 is up 18%.

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