Alphabet Inc. said on Tuesday that it would buy back $70 billion worth of its own stock. It also said that its profits and sales for the first quarter were higher than expected, thanks to higher demand for cloud services and better-than-expected ad sales.
Investors liked the plan to buy back shares, which sent shares of the company that owns Google up as much as 4% in after-hours trading before the gains were cut back to 1.6%. Cloud services became more popular, and Google’s ad sales did better than planned.
Alphabet’s ad sales for the first quarter were $54.55 billion, which was a little less than the same time last year but more than the $53.71 billion that analysts had predicted. It was the third time this happened since the company went public in 2004, but it was the second time in a row after a 3.6% drop in ad sales in the fourth quarter.
If you take out some things, Alphabet’s earnings per share were $1.17, which was more than the average expectation of $1.07 per share.
Max Willens, a senior analyst at Insider Intelligence, said, “Google beat expectations for both revenue and earnings per share this quarter, but there aren’t many reasons for investors to be optimistic.”
He said that making a profit in cloud computing was “notable,” but “the reality is that Google Cloud remains comfortably behind its two most important competitors, and its growth is slowing.” The unit’s sales went up by 28%, to $7.41 billion.
Also, advertisers, who make up most of Alphabet’s sales, have cut back on spending because more people are shopping in stores again after masking and other limits were eased. Marketers are trying out more new sites like TikTok, which is popular with younger people. In the meantime, the company has been trying to keep costs low in the face of worries of a recession.
In January, the company decided to cut about 12,000 jobs. Ruth Porat, the CFO, told investors on a conference call that she thought capital spending would be “modestly higher” this year than in 2022.
Alphabet has also tried to cut costs in other ways, such as with staff perks and how they use company resources. In March, Porat told workers in a private email that they could expect more ways to cut costs in the coming months.
She said on Tuesday’s call that Alphabet is trying to “durably engineer our cost base” so that it can spend on things like cloud computing and artificial intelligence.
Alphabet’s Google unit has been working hard to keep up with competitors, especially Microsoft Corp., by releasing new artificial intelligence software that can write long answers to questions and other prompts. Microsoft gave $10 billion to OpenAI, whose ChatGPT software has been the talk of Silicon Valley since a free version came out in November.
Microsoft also beat Wall Street’s predictions for its third-quarter profit and sales on Tuesday. This was due to growth in its cloud computing and Office productivity software businesses, and its shares went up 8.5% in trading after the market closed. Both Meta Platforms Inc and Amazon.com Inc, which are both tech companies, saw their stock prices go up.
Refinitiv data shows that Alphabet’s income for the quarter ending March 31 was $69.79 billion, which was higher than what was expected, which was $68.95 billion.
It made $15.05 billion in net profit in the first three months of the year, which is less than the $16.44 billion it made in the same time last year.
(Akash Sriram reported from Bengaluru and Greg Bensinger from San Francisco; Arun Koyyur, Sayantani Ghosh, and Matthew Lewis edited)