Alphabet reported first-quarter earnings and revenue that handily beat consensus estimates while the internet giant announced its first-ever dividend and a new $70 billion stock buyback. Google stock soared as Alphabet's cloud computing and YouTube units beat estimates as well as its core digital advertising business.
"We continue to believe that Google is at the beginning of a major new secular growth cycle powered by generative artificial intelligence innovations in the consumer, advertiser, and enterprise space," said Evercore ISI analyst Mark Mahaney in a report.
At Bank of America, analyst Justin Post also cheered results, which he says should ease worries over artificial intelligence.
Despite fast-rising capital spending amid AI investments, Google told analysts it expects operating margins to expand in 2024 as it moderates expense growth and targets efficiency gains across the business. More workforce reductions could lie ahead.
GOOGL Stock: No CFO News
"The quarter beat expectations across all major business lines, supporting a narrative change: Google is a beneficiary of AI. Search is still not without disruption risk, but we remain constructive on Google infrastructure, data and distribution advantages," Post said in a report. "We think cleaner expense quarters are also still possible in 2024."
On the stock market today, GOOGL stock jumped 10.2% to close at 171.95. With Friday's gain, Google stock moved above a 5% buy zone.
Investors could buy the Google earnings gap-up, though shares have pulled back from early highs. One option is to wait a few days to see if Google holds the earnings gap and then clears a short consolidation.
Google Joins Meta With Dividend
Meanwhile, Google said its first quarterly dividend will be 20 cents. It joins Facebook-parent Meta Platforms as a new dividend payer among tech giants.
Apple, Microsoft and Nvidia also pay dividends though the companies have not increased the dividends much.
Google did not provide an update on its search for a new chief financial officer.
Reported after the market close on Thursday, Google earnings came in at $1.89 per share, up 61% from a year earlier.
A gain of $2.2 billion from equities on Google's balance sheet boosted Q1 earnings by about 15 cents. The tech giant reports earnings under generally accepted accounting principles, also known as GAAP.
Further, gross revenue rose 15% to $80.54 billion. Analysts had predicted Google earnings of $1.51 per share on revenue of $78.7 billion.
Google Stock: Cloud, YouTube Results Beat
Additionally, advertising revenue rose 13% to $61.66 billion, topping estimates of $60.44 billion.
Meanwhile, YouTube ad revenue rose 21% to $8.1 billion, beating estimates of $7.7 billion. "On the viewership side, YouTube surpassed 100 million music and premium subscribers, contributing to strong ad revenue growth within the segment," said William Blair analyst Ralph Schackart in a report. "Moreover, YouTube TV has more than 8 million paid subscribers."
Google said cloud-computing revenue rose 28% to $9.574 billion, above estimates of $9.4 billion.
GOOGL stock holds a Composite Rating of 97 out of a best-possible 99, according to IBD Stock Checkup.
"Maybe most important relative to the big after-hours move in the stock was margins came significantly ahead of expectations — 350 basis points above consensus which enabled a 25% EPS beat," said RBC Capital analyst Brad Erikson in a report.
Capital Spending Jumps On AI Investments
Heading into the Google earnings report, the big-cap internet stock had advanced 11% in 2024. Shares gained in March on reports of a pending artificial-intelligence-related deal with Apple.
But Google stock retreated in Thursday's regular session on worries over capital spending soaring as tech giants compete in generative AI.
In Q1, Google's capital spending jumped 91% to $12 billion, up from $11 billion in the December quarter and $6.3 billion in the year-earlier period. Jefferies analyst Brent Thill expects Google's 2024 capital spending to jump 54%.
Google is among AI stocks to watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
