Shares in Alphabet rise after its first quarter results beat expectations, despite reduced ad spending, TikTok competition etc
Alphabet has pleased Wall Street with relatively healthy first quarter fiscal results, amid reduced ad spending and increased competition.
Google’s parent posted a slight drop in quarterly profits, but overall revenues increased 3 percent, beating investor expectations, which briefly sent Alphabet’s share price up 4 percent in extended trading.
The Alphabet results are the second sign of resilience within the tech sector, after Microsoft also pleased investors by beating analyst expectations.
Like Microsoft and other tech players, Alphabet has sought to cut costs in light of the economic downturn.
Ongoing fears of a possible recession has resulted in advertisers reducing their online marketing budgets, which has impacted firms such as Facebook’s Meta, Google and others.
To tackle this, Alphabet in January announced that it would cut 12,000 jobs worldwide, or roughly 6 percent of its workforce.
However there are reports of unrest within Alphabet’s workforce over the way these cuts are being carried out, prompting staff walkouts in some locations.
Google said expect most of those staff affected by the layoffs, would no longer be reflected in its headcount by the end of the second quarter of 2023, subject to local law and consultation requirements.
Besides job cuts, Alphabet is also undertaking other cost reduction measures to help offset the decline in advertising spending that has impacted most notably YouTube.
Google has also said it would carry out multi-year cost reductions that includes reducing office space. It has also begun a desk-sharing policy, which CEO Sundar Pichai recently defended saying that “it feels like a ghost town” in some of the company’s offices, and he said that some staff are coming into the office “only two days a week.”
The firm has also cut back on fitness classes, staplers, tape and the frequency of laptop replacements for staff.
And now this week Google has published its first quarter financial results, which showed a surprising amount of resilience from the tech giant amid all the market challenges.
For the first quarter ending 31 March, Alphabet posted a net profit down slightly at $15bn, from $16.4bn in the same year-ago quarter.
This translated into a $1.17 per share, compared to $1.07 per share expected, according to Refinitiv.
Overall quarterly revenues for the group rose 3 percent to $69.8bn from $68bn a year earlier. Refinitiv had expected revenues of $68.9 billion.
“We are pleased with our business performance in the first quarter, with Search performing well and momentum in Cloud,” said Sundar Pichai, CEO of Alphabet and Google.
“We introduced important product updates anchored in deep computer science and AI,” Pichai added. “Our North Star is providing the most helpful answers for our users, and we see huge opportunities ahead, continuing our long track record of innovation.”
Digging down into the results, Google search brought in $40.4bn, up from $39.6bn a year earlier.
YouTube advertising revenue was, as expected, down at $6.69bn, from $6.87bn a year earlier. Analysts had been expecting around $6.6 billion, so this was in line with their expectations, and it comes despite the overall reduction in ad spending, and the increase competition YouTube is facing from TikTok’s short-form videos.
Meanwhile revenue for Google Cloud rose to $7.45bn ($5.82bn). Wall Street had been expected $7.49 billion. Despite that miss, Google is finally generating a profit in its cloud-computing business, after it recorded an operating income of $191 million in the quarter, following a $706 million loss a year ago.
Traffic acquisition costs (TAC) came in at $11.72 billion (down from $11.99bn a year earlier), Analysts had expected TAC at $11.78 billion.
Revenues from Alphabet’s ‘Other Bets’ division, which includes Google’s life sciences unit Verily and self-driving car company Waymo however declined down to $288m from $440m a year earlier.
Alphabet has previously said said that its artificial intelligence subsidiary DeepMind will no longer be reported in its Other Bets, but would be reported as part of Alphabet’s corporate costs.
Last week Alphabet announced that UK-based Deepmind would be merged into Google Brain, to expand Google’s AI push.
Google has also announced that it intended to buy back $70 billion in stock, in a move that always goes down well with investors.
Despite mostly meeting Wall Street expectations, Google is feeling pressure from the popularity of AI-based chatbot ChatGPT, from Microsoft-backed OpenAI.
Google is also facing some other challenges.
Last week a New York Times report indicated that Samsung is considering changing its default search engine from Google to Microsoft’s Bing for its lineup of Android smartphones.
Next month Alphabet is expected at its annual developer conference to reveal a number of updates to its products, including Android and its Pixel smartphones. This could potentially include the launch of its first foldable smartphone at a cost of $1,700 plus.