Alphabet’s sales beat forecasts amid gains in Google search advertising

Google’s parent company, Alphabet Inc., reported first-quarter revenue and profit this year that exceeded analysts’ expectations, thanks to the continued strengthening of its search advertising business, Bloomberg reports, writes UNN.

DetailsFirst-quarter sales, excluding payments to partners, were $76.5 billion, the company said in a statement Thursday. Analysts expected an average of $75.4 billion, according to data compiled by Bloomberg. Net profit reached $2.81 per share, compared to Wall Street’s estimate of $2.01.

Shares, which have fallen 16% since the beginning of the year, rose more than 5% in pre-market trading on Friday.

Alphabet needs to provide momentum in its online search and cloud advertising business to justify its increased investment in the artificial intelligence race. Competition is pushing the company and its competitors to spend heavily on infrastructure, research and talent. While Google benefits from startup investments in artificial intelligence in cloud and business tools, the company is also rushing to introduce an answer to popular conversational AI chatbots that consumers are beginning to see as an alternative to using Google Search.

Google’s initial response to this threat – its “AI Overviews” and “AI Mode” in search, in which summarized answers are generated by generative AI and highlighted before Google web links – has had mixed success. Meanwhile, Google’s AI changes in search have reduced traffic to independent websites on the open Internet, the publication writes.

The company’s first-quarter profit included $8 billion in “unrealized gains from our non-marketable securities related to our investment in a private company,” according to the document. The private company, which Alphabet did not name in its report, is Elon Musk’s Space Exploration Technologies Corp., according to a person familiar with the matter. As Bloomberg reported, Google has been an investor in SpaceX since at least 2015, when it joined Fidelity Investments in an investment of $1 billion, representing about 10% of the total stake.

Google Cloud generated an operating profit of $2.18 billion, beating analysts’ forecasts of $1.94 billion, despite the fact that sales slightly missed expectations. The results suggest that Google may be able to generate more profit from Cloud, even as sales slow.

The cloud division is so far the clearest indicator of how the artificial intelligence boom is driving the company’s sales, amid startups that need more computing power for their work becoming its customers, the publication writes. Although Google Cloud is still in third place after the offerings of Amazon.com Inc. and Microsoft Corp., it is one of Alphabet’s most important growth areas. According to Chief Financial Officer Anat Ashkenazi, for the second quarter in a row, the company had more customer demand than its data center capacity.

That’s why Alphabet continues to invest heavily in artificial intelligence, increasing its spending on servers and data centers. Capital expenditures in the first quarter amounted to $17.2 billion, which is slightly higher than analysts’ expectations of $17.1 billion.

Search advertising, as indicated, brought in $50.7 billion in sales. This compares to the average analyst forecast of $50.3 billion. The division remains the main engine of Google’s broader advertising business and has found support in the insurance, retail, healthcare and travel industries, executives said on a conference call with investors after the earnings report.

YouTube RevenueGoogle’s YouTube streaming video site, which turned 20 in February, posted a revenue report of $8.92 billion, slightly below analysts’ forecasts of $8.94 billion. The division, which has made significant inroads into podcasting, recently announced that one billion people watch podcasts on its platform every month – outpacing both Spotify Technology SA and Apple Inc. in this category. YouTube, which generates most of its revenue from advertising, also recorded an increase in subscriptions, company executives said on the earnings call.

SummaryAlphabet’s optimistic report sets a high bar for its competitors in digital advertising, including Meta Platforms Inc. and Amazon.com Inc., which are due to release their earnings next week, the publication writes. Investors are watching large Internet companies for signs of volatility in the advertising market or business disruptions caused by geopolitical and trade tensions.

The Alphabet Board of Directors approved a $70 billion share buyback and increased the dividend by 5% to 21 cents per share.