Alphabet beats revenue estimates and announces dividend payment

Alphabet reported revenue in the first quarter that exceeded analysts’ expectations, driven by the growth of its cloud computing unit.

Google’s parent company reported sales, excluding payments to partners, of $67.6 billion in the three months ended March 31, exceeding the $66.1 billion expected by analysts on average, according to data compiled by Bloomberg. Net income was $1.89 per share, compared to Wall Street’s estimate of $1.53 per share.

The company also said it would pay a dividend of 20 cents per share and repurchase an additional $70 billion in shares. Shares jumped 14% in the after-market.

Like other “big techs”, Alphabet has invested in the development of artificial intelligence, a strategy that helped boost demand for its cloud services, which recorded a 28% increase in revenue in the 1st quarter. Google ranks a distant third in the cloud computing market behind Amazon and Microsoft, but the company’s AI prowess could help it close that gap.

Google developed much of the technology used today in the AI ​​boom and incorporated it into its products, from web search to its enterprise software suite, from Gmail to Google Docs.

However, since OpenAI’s ChatGPT launched in late 2021, Google has struggled with the perception that it is lagging behind Microsoft and OpenAI in launching new generative AI tools. The arrival of popular chatbots like ChatGPT — which answers questions in a conversational tone rather than providing lists of links to other sites — posed a threat to Google’s two-decade dominance in search. The company struggles to compete in generative AI without cannibalizing its main profit machine.

Search advertising revenue increased 14% to $46.2 billion – the average estimate was $45 billion.

Google brought together teams across the company to reassert its leadership in AI, but its early efforts were marred by embarrassing missteps, including a scandal over the way its Gemini AI model handled race, which forced it to company to suspend the generation of images of people.

Investors have shown they are excited about the prospects of AI, but want technology companies to continue to focus on revenue and profits. Meta, which competes with Google in AI and digital advertising, suffered its worst drop in share value since October 2022 after saying it would spend billions of dollars more this year on AI efforts and projecting weaker revenue for the current quarter.

Search advertising continues to be the driver of Google’s very profitable business, and the company also faces stiff competition. Meta has been spreading AI tools across its advertising business and Snap has also undergone a complete overhaul of its advertising business to improve ad targeting. The digital advertising market is recovering from a post-pandemic crisis driven by this year’s Olympic Games, but Google is increasingly competing for that ad money with Meta and Snap.

If consumers migrate from Google search to the new wave of chatbots, it could endanger the company’s search advertising juggernaut, which is expected to generate nearly $200 billion in revenue this year — the majority of Alphabet’s profit .

The cloud has been a bright spot for Google after it became profitable early last year. Many young AI startups are founded by former Google employees, creating a strong customer pipeline in this sector.

© 2024 Bloomberg L.P.