Written by Julia Love and Davey Alba
Alphabet Inc. reported first-quarter sales that beat analysts' expectations, helped by growth in its cloud computing division.
Click here to follow our WhatsApp channel
Google's parent company had revenue of $67.6 billion (excluding partner payments) for the three months ended March 31, beating the average analyst estimate of $66.1 billion, according to data compiled by Bloomberg. . Net income was $1.89 per share, compared to Wall Street's expectations of $1.53 per share.
The company also announced it would pay its first-ever dividend of 20 cents per share and buy back an additional $70 billion in stock. Shares rose 13% in extended trading.
Like other Big Tech companies, Alphabet has been pouring money into developing artificial intelligence, a strategy that has helped drive demand for its cloud services, with revenue up 28% in the first quarter. Google ranks third in the cloud computing market, behind Amazon.com and Microsoft, but its AI capabilities could help close the gap. .
“Importantly, we're really excited about the benefits of AI for our cloud customers,” Chief Financial Officer Ruth Porat told reporters on a conference call. “We're seeing a growing contribution from our AI solutions,” she said, adding that Google Cloud's results “reflect the broader strengths of the industry as a whole.”
Google developed much of the foundational technology used in today's AI boom and weaves it into products ranging from web search to a suite of enterprise software from Gmail to Google Docs.
However, since the release of OpenAI's ChatGPT in late 2022, Google has been battling the perception that it is lagging behind Microsoft and OpenAI in deploying new generative AI tools. The rise of popular chatbots such as his ChatGPT, which answer questions conversationally rather than providing a list of links to other his websites, poses a threat to his two-decade search dominance at Google. I am. The company is struggling to compete with generative AI without cannibalizing its core profit machine.
Google has assembled an internal team to reassert its lead in AI, but its early efforts have been marred by embarrassing missteps, including a scandal over how its Gemini AI model deals with race. As a result, the company was forced to stop generating images of people.
Investors are excited about the promise of AI, but in the meantime they want tech companies to stay focused on revenue and profits. Metaplatforms, which also competes with Google in AI and digital advertising, said it would spend billions more on AI efforts this year and expected its revenue to fall this quarter, the first since October 2022. experienced its worst share price decline.
Google said it spent $12 billion in capital expenditures in the first quarter, most of which was in technology infrastructure such as servers and data centers. Porat said he expects quarterly capital spending to be about the same level or higher throughout the year.
Developing tools for generative AI is very expensive, but Alphabet CEO Sundar Pichai said, “We are very confident that we can manage the cost of responding to these queries.” Ta. Although there are questions about how Alphabet will be able to monetize its AI capabilities, Pichai said he is “comfortable and confident that we can successfully manage the transition to monetization here as well.”
Unlike Meta, Google's latest results show that the world's largest digital advertising machine continues to fuel the company's growth thanks to search and YouTube. Search advertising revenue rose 14% to $46.2 billion and remains the core of Google's highly profitable business. However, the company faces increasing competition there as well.
Meta is implementing AI tools across its advertising business, and Snap Inc. is also overhauling its advertising business to improve ad targeting. The digital ad market is recovering from a post-pandemic slump, boosted by this summer's Olympics, but Google is increasingly competing with Meta and Snap for ad dollars.
“Google's core search business was also strong, but its future is not guaranteed,” said Evelyn Mitchell-Wolf, an analyst at eMarketer. “Next quarter, a verdict is expected in a related U.S. Department of Justice antitrust case, and the incorporation of an AI-generated component into Google's main search interface marks perhaps the biggest change to the search advertising market since its inception.” It will be.”
If consumers gravitate away from Google Search to a new wave of chatbots, the company's search advertising behemoth, which is expected to generate nearly $200 billion in revenue this year and the bulk of Alphabet's profits, could be in jeopardy. be.
Cloud has been a bright spot for Google since it first turned a profit early last year. Many of the young AI startups were founded by former Google employees and have built a strong pipeline of cloud clients.
Google Cloud reported revenue of $9.6 billion. The division's profit was $900 million, well above analysts' expectations of $672.4 million.
“For years, Google Cloud has been the weak link in Alphabet's earnings calls,” said Lee Suster, principal analyst at Forrester. “These latest results show that Google Cloud's AI services are not only making business customers think twice, but also making them spend a lot of money.” Suster added that it didn't have to rely on revenue from the tech giant's advertising business to make up for losses, showing it is a strong division in its own right.
Despite the tough questions AI poses for the search business, Mitchell-Wolf says, “But there's no question that Google's AI ventures are supporting the cloud, which is a consistent driver of growth.” said.
Hugely popular video site YouTube reported revenue of $8.1 billion, compared to analysts' average estimate of $7.7 billion. The sector rebounded last quarter after a series of disappointing results that showed the cost of advertisers' spending cuts.
“YouTube, in particular, appears to have benefited from investments in live sports, a crackdown on ad blocking, and improved monetization of short videos, resulting in its highest growth rate in two years,” Mitchell said. Wolff said.
Alphabet's Other Bets, an eclectic collection of fledgling companies such as self-driving car developer Waymo and life sciences company Verily, had revenue of $495 million and a loss of $1 billion. Investors have been closely monitoring the unprofitable division for years, and earlier this year the company's famous moonshot factory, X, laid off dozens of people to focus on spinning out the company. Reduced.
Porat, who was named Alphabet's president and chief information officer last year, is expected to focus more on overseeing these investments after the company hires a new CFO to replace her.
To free up resources to invest in artificial intelligence, Google has implemented a series of gradual layoffs, hitting teams such as hardware, engineering and Moonshot Labs. Google reported a total of 180,895 employees, down from 190,711 in the same period last year.
