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Alphabet CFO reassures investors that the company is still plowing money into its cash cow: advertising

Key Points
  • Alphabet beat expectations on its Q2 earnings but its capital expenditures nearly doubled year-over-year. 
  • CFO Ruth Porat made sure to reassure investors that it's still spending its money on its core business: advertising. 
Ruth Porat, CFO of Alphabet, at the New York Economic Club on May 22, 2017.
Adam Jeffery | CNBC

Alphabet is still very much an advertising company and its CFO wants to make sure Wall Street knows that it's spending its money accordingly.

Though the stock surged after Alphabet beat expectations on its second quarter earnings, its capital expenditures were eye-catching: Capital spending nearly doubled year-over-year to $5.5 billion. Its operating expenses, meanwhile, hit $10.9 billion, up 24 percent year-over-year.

In the earnings call, CFO Ruth Porat attributed the capex increase to production equipment, data center construction, and office space. Although building out data centers is important as Google's Cloud business tries to catch up to Amazon and Microsoft, Porat also noted that these computers power the machine learning in its core products, like search and ads.

Later in the call, she used a question about how Google prioritizes investment across Cloud, hardware, and its app store, Play, to drill back down on Alphabet's focus on advertising.

"I think one of the most important points to underscore [on investment priorities] is that one of the biggest opportunities for investment continues to be in our ads business where we're continuing to invest meaningfully given the opportunity set that we see there," she said, adding that making user experience and advertising tools better "extend the growth" of that cash-cow.

"I don't want to leave you with the notion that the investment is just going to newer businesses," she said.

Right now, Alphabet's advertising business drives 86 percent of its total revenues, while its "other" businesses (Cloud, Play, and hardware) only contribute 13 percent of revenue. Many see Cloud as being one of Alphabet's big future growth drivers, but in Monday's earnings Porat seemed intent on making sure that investors knew that it was still spending money in the one area that it's making money.

The other area that Alphabet breaks out in its earnings are its flashy "Other Bets," like self-driving car unit Waymo and its health division Verily. Those efforts make up less than 1 percent of Alphabet's revenue, though capex is low, too, at $10 million.

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Google to increase headcount in cloud: Alphabet CFO Ruth Porat