Alphabet delivered a surprising first-quarter report on Thursday, with revenue, operating margin and profit beating Wall Street expectations. The search engine giant also increased its share buyback program and introduced a quarterly dividend for the primary time in its history. Total revenue rose 15.4% year-on-year to $80.54 billion within the three months ended March 31, beating expectations of $78.59 billion, in accordance with estimates from data provider LSEG. Earnings per share rose 62% on an annual basis to $1.89, beating expectations of $1.51, LSEG data showed. Alphabet Why we own it: Alphabet’s Google Search is a useful tool for advertisers. Its YouTube platform continues to realize screen time amongst viewers and is predicted to grow even further as the corporate looks to accumulate Major League sports rights. Although it got off to a rocky start, we imagine Alphabet is a frontrunner in artificial intelligence research and see progress in the expansion of cloud computing over time. Competitors: Amazon, Microsoft and Meta Platforms Weight in Portfolio: 2.73% Last Purchase: March 4, 2022 Initiated: July 22, 2014 Conclusion This is the earnings report we have been waiting for. Management finally showed strength in key items, and shares understandably rose nearly 12% in prolonged trading. Alphabet’s three big investor watch products – Search, YouTube and Google Cloud – all delivered better-than-expected sales within the quarter, leading to companywide sales that beat estimates. Meanwhile, earnings beat expectations, driven largely by a really strong operating margin of 31.6%. Management continued to scale back its cost base, which was reflected in strong profitability across the board. Operating profit beat estimates within the Google Services segment, which houses the search engine business and YouTube, and within the cloud computing division Google Cloud. And the Other Bets division, which houses speculative initiatives like self-driving automotive maker Waymo, reported smaller-than-expected losses. Cash flow generation fell barely wanting expectations, but management was still confident about introducing a quarterly money dividend of 20 cents per share and its board approved an extra $70 billion in share repurchase program. Alphabet joins club-owned tech firms Meta Platforms and Salesforce in paying a dividend this 12 months. Buybacks aren’t any stranger, with $61.5 billion spent on them last 12 months, but the brand new clout is appreciated. GOOGL YTD Berg Alphabet’s year-to-date stock performance. Alphabet CEO Sundar Pichai added to the list of positives during his prepared remarks on Thursday, saying YouTube and Google Cloud were on course to finish the 12 months with combined annual revenue of over $100 billion . This means the 2 segments may have a combined quarterly revenue of at the least $25 billion by the tip of the 12 months. Alphabet tested our patience within the generative artificial intelligence race, but we never completely abandoned the position because we believed the corporate had what it took to deliver for its shareholders. On Thursday evening, Alphabet finally cleared the high bar we have set for megacap tech firms. Coupled with encouraging updates to its AI strategy earlier this month, we could have reached a tipping point. Given Thursday’s excellent report and dividend announcement, we’re increasing our price goal from $160 to $190 per share. Our 2 rating for the stock stays. Quarterly Comment Better-than-expected search revenue of $46.16 billion was led by retail advertisers, CFO Ruth Porat said on the earnings call. However, she noted that they see “broad strength across all sectors.” YouTube’s strength got here from outperformance in each direct response and brand promoting. Monetization for YouTube Shorts — the corporate’s short-term video feature that competes with TikTok and Metas Reels — continues to enhance with ads now supported on mobile, tablet, front room and desktop, in accordance with Chief Business Officer Philipp Schindler. Pichai said YouTube’s subscription offerings are also performing well. YouTube has surpassed 100 million global music and premium subscribers, including trials, he said. His television streaming service YouTube TV now has greater than 8 million paid subscribers. Google Cloud growth of 28% represented a sequential acceleration from the ultimate three months of 2023, when revenue rose 25.7%. In particular, management said the unit had benefited from an “increasing contribution” from AI – a welcome sign for investors given the heavy investment in the favored technology. “The growth we are seeing in the cloud space is underpinned by the benefits AI brings to our customers,” Porat said. Alphabet’s operating money flow was somewhat weak, but still well above its net income of $23.66 billion. This is an indication of top quality returns backed by money. Capital expenditures of $12.01 billion were well above estimates, but now we have no objections to this as the general business is powerful and expenditures are supported by investments in technical infrastructure, which incorporates AI servers and data centers. were driven. The capex figure explains why free money flow was barely below expectations at $16.84 billion. Still, the corporate generated incredible amounts of money to support investments in future growth initiatives like AI, while also returning large sums to shareholders. Capital Gains In the January-March quarter, Alphabet returned nearly $14.6 billion to shareholders through buybacks, partially offset by $5.3 billion in stock-based compensation. The company exited the quarter with $108 billion of money, money equivalents and marketable securities on its balance sheet, in comparison with $110.9 billion at the tip of 2023. Alphabet’s first dividend might be paid on June 17 to shareholders, who’ve owned the stock since June 10. At 20 cents per share, Alphabet’s dividend yield is 0.51% based on Thursday’s close. This is on par with firms like Meta and Apple. (Jim Cramer’s Charitable Trust is long GOOGL, AMZN, MSFT, META. A full list of stocks might be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. 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Alphabet CEO Sundar Pichai in the course of the Google I/O Developers Conference in Mountain View, Calif., May 10, 2023.
David Paul Morris | Bloomberg | Getty Images
alphabet delivered a surprising first-quarter report on Thursday, with revenue, operating margin and profit beating Wall Street expectations. The search engine giant also increased its share buyback program and introduced a quarterly dividend for the primary time in its history.
