Current holding within the value component of the US Growth portfolio, Alphabet (GOOG) has announced Q1 earnings after hours, with shares climbing by 13% as investor react positively to the results, strategic initiatives and its first quarterly cash dividend.
The tech giant not only surpassed revenue expectations with $67.6 billion in sales, excluding payouts to partners, but also introduced a groundbreaking cash dividend of $0.20 per share.
For the first time, Alphabet will venture into quarterly cash dividends, with the board’s future approval. This move complements their authorization to repurchase up to an additional $70.0 billion of Class A and Class C shares, signaling strong confidence in the company’s financial position.
This quarter’s earnings highlight was a net income of $1.89 per share, significantly outpacing the Wall Street consensus of $1.53 per share. This robust performance is largely attributed to the company’s aggressive advancements in cloud computing and artificial intelligence (AI). Alphabet’s cloud services saw a 28% increase in revenue, benefiting from the integration of AI, which has been a major area of focus for the company following the widespread impact of AI tools like OpenAI’s ChatGPT.
Despite the competitive pressures from Microsoft and OpenAI in the generative AI space, Google has been diligently enhancing its AI capabilities, though not without some challenges. Recent missteps in AI development have not deterred the company from pushing forward in this critical area. Google’s leadership, including CEO Sundar Pichai, remains optimistic about managing costs and effectively monetizing these new technological frontiers.
Furthermore, Alphabet’s strength in digital advertising is evident in their search and YouTube revenues, which continue to be the cornerstone of their profitability. The search advertising segment alone grew by 14%, generating $46.2 billion. However, the digital advertising landscape is becoming increasingly competitive, with companies like Meta and Snap enhancing their AI-driven ad targeting capabilities.
Google Cloud has notably shifted from a weaker segment in past earnings to a powerhouse, contributing significantly to Alphabet’s revenue stream with $9.6 billion in sales this quarter. This success is a testament to the appealing and effective AI solutions being offered to enterprise customers.
Overall, the latest results continue to highlight Alphabet as a high-quality business which continues to demonstrate excellent performance. Alphabet remains an active buy/hold recommendation.
