ii view: Google owner Alphabet boosts sales and pays first dividend

First-quarter results to 31 March

• Revenue up 15% to $80.54 billion
• Adjusted earnings per share up 61% to $1.89
• Dividend of $0.20 per share
• Share buyback programme extended to $90 billion

Chief Executive Sundar Pichai said:

“Our results in the first quarter reflect strong performance from Search, YouTube and
Cloud. We are well under way with our Gemini era and there’s great momentum across the company. Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.”

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ii round-up:

Alphabet Inc Class A (NASDAQ:GOOGL) detailed sales that beat Wall Street expectations, with the Google owner declaring its first ever quarterly dividend payment of $0.20 per share.

Customer engagement via its Gemini Artificial Intelligence (AI) software helped first-quarter sales rise 15% year-over-year to $80.54 billion, with a focus on costs aiding a 61% jump in adjusted earnings to $1.89 per share. An additional $70 billion boosted its authorised share buyback programme to $90 billion.  

Shares in the Nasdaq 100 company rose 14% in after-hours US trading having come into this latest news up 11% year-to-date. That’s similar to fellow cloud data hosting business Amazon.com Inc (NASDAQ:AMZN), although far short of a 67% gain for AI computer chip maker NVIDIA Corp (NASDAQ:NVDA).

Sales at its core Google advertising business, and now AI aided, climbed 13% to $61.7 billion. Within that business YouTube related advertising rose 21% to $8.1 billion. 

Revenue from its Cloud business, now regularly hosting AI software for its customers, improved 28% to $9.6 billion compared with growth of 25% in the previous fourth quarter. Cloud related profit rose to $900 million from $864 million. 

The introduction of a quarterly dividend comes as cash held hits $108 billion and follows a similar move made by Facebook owner Meta Platforms Inc Class A (NASDAQ:META) in February. 

Also like Meta, Alphabet is pushing capital expenditure aimed at driving and enabling future AI capabilities, with spending of up to $55 billion expected this current fiscal year.

Broker Morgan Stanley reiterated its ‘overweight’ stance on Alphabet shares post the results, flagging a fair value share price of $195.  

ii view:

Started in 1998, Alphabet generated 2023 total sales of just over $307 billion. It operates across the three divisions of Google Services, Cloud and Other Bets. Services includes its hardware, Google maps and Google play services, along with its core search adverting business including YouTube. Google Cloud competes against the likes of Microsoft Corp (NASDAQ:MSFT), Amazon, Oracle Corp (NYSE:ORCL)and International Business Machines Corp (NYSE:IBM), while its Other Bets division includes both its self-drive Waymo business and its life sciences unit Verily. 

For investors, an uncertain economic outlook and heightened geopolitical tensions may be generating some caution among its advertising spending corporate customers. Rivals such as TikTok and Tesla Inc (NASDAQ:TSLA) are competing hard against its own YouTube and Waymo units, spending on AI developments does not guarantee future leadership or success, while fears that AI could encroach on its search engine business cannot be ignored.  

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On the upside, potential for its AI product to enhance advertising success appears evident, with management now investing heavily in that part of the business. A high focus on costs persists including a previous rejigging of its office portfolio and the business is also diverse across both business type and geographical coverage. Ownership of the Android mobile phone operating system leaves it less depend than say Meta on the metrics set by Apple for advertising privacy, while its focus on shareholder returns has increased given the introduction of a dividend payment. 

For now, and despite ongoing risks, this giant of the online advertising world looks to remain worthy of a place in diversified investor portfolios. 

Positives

• Alphabet dominates the digital advertising market
• Executing share buybacks

Negatives

• Uncertain economic outlook
• Technology giants remain under global government scrutiny

The average rating of stock market analysts:

Buy