Alphabet, the parent company of Google, has posted its first-quarter results. However, the results are with mixed outcomes for the company. Although the core search advertising business stayed resilient, YouTube faced a decline. The decline in YouTube ads has affected the total advertising revenue, which remained unchanged year over year. So, while Google‘s outlook remains uncertain, the company managed to narrowly beat Wall Street’s expectations.
Financial Performance
One positive outcome is the better cost controls implemented by the company. In particular, the total operating profit of $17.4 billion came in 6% ahead of Wall Street’s forecasts. Free cash flow of $17.2 billion also exceeded the expected $13.5 billion due to lower capital expenditures.
Moreover, the costs to generate organic traffic to the search business is around 16.8% of the revenue. In fact, that’s the lowest for that metric in over a decade.
Stock Buybacks
To satisfy the shareholders, Google announced a new $70 billion stock buyback. Actually, the stock buyback is similar to their last repurchase plan announced a year ago. However, controlling the costs will remain a challenge for Google. It races with Microsoft to deploy expensive generative artificial intelligence technology. Especially into services like search, cloud, and software offerings. So, capital expenditures will most likely be higher compared to last year. This is because of the need to invest in technical infrastructure. So, to learn more about Stock Buybacks, click here.
The Cloud Business of Google
Google‘s cloud business has been struggling to catch up with rivals like Amazon and Microsoft. Nonetheless, it has also shown its first-ever operating profit of $191 million. However, this move has weighed on the margins of the core Google Services business. In particular, Google Services business accounts for 89% of Alphabet‘s revenue. This reshuffling of costs will need to be closely monitored to ensure the long-term growth of the company.
Outlook
Despite the positive outcomes for Alphabet, the share price was up only 1%. Following its call compared to a 9% gain for Microsoft, which also reported results on Tuesday. Microsoft’s results however issued a stronger outlook. Further improvements to Google‘s bottom line are likely. So, with the company’s total headcount of nearly 191,000 workers have yet to reflect the laying off. Last, earlier this year Google announced the laying off of 12,000 workers.
In a Nutshell
Overall, the first-quarter results for Alphabet have been mixed. The company has managed to beat Wall Street’s expectations and implement better cost controls. However, the continuing slump in YouTube ads have impacted total advertising revenue. Additionally, there is also some uncertainty in the outlook. Alphabet is currently investing in technical infrastructure. Therefore, capital expenditures will continue to be a challenge for the company. This is because costs are being reshuffled between its core business and cloud business. As a result, that will require careful monitoring to ensure sustained growth in the long term.