Shares of Google parent Alphabet jump after $70bn stock buyback pledge

Revenue during the first-quarter rose about 3 per cent annually to $69.8 billion

Google reported revenue of $69.7 billion in the first quarter. Reuters

Shares of Alphabet, the world's largest provider of search and video advertisements, rallied after the company said it would buy back about $70 billion in stock and its first-quarter revenue results exceeded analysts’ estimates.

Revenue during the three-month period to the end of March rose about 3 per cent annually to $69.8 billion as the company's search engine business performed well despite the economic slowdown and its cloud unit became profitable for the first time. The revenue results beat Refinitiv estimates of about $68.9 billion.

However, first-quarter net profit dropped about 8.4 per cent on an annual basis, as the company took a $2.6 billion hit related to job cuts and a reduction in office space in the first-quarter.

Net profit at Google's parent company dropped to about $15 billion in the three months to the end of March, from the same period in 2022.

Alphabet said its board agreed for the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares, according to a regulatory filing.

That was welcomed by investors, with the company's shares jumping as much as 5.9 per cent in after-hours trading before they pared gains to trade up about 1.7 per cent. Alphabet's shares closed down 2 per cent to $103.85 in regular trading hours on Tuesday.

The stock has gained 16.5 per cent so far this year and the company had a market value of about $1.33 trillion at market close on Tuesday.

In January, the company said that it was laying off 12,000 people — about 6 per cent of its nearly 190,000 employees — after a review across product areas and functions.

This month, the company's chief financial officer Ruth Porat announced further cost-cutting measures in the form of reducing employees’ incentives and perks — such as free snacks, shuttle services and fitness sessions.

“We are pleased with our business performance in the first quarter, with Search performing well and momentum in Cloud,” Alphabet and Google chief executive Sundar Pichai said.

“We introduced important product updates anchored in deep computer science and AI [artificial intelligence] … we see huge opportunities ahead, continuing our long track record of innovation.”

Alphabet earned more than 47 per cent of its first-quarter revenue, or nearly $32.8 billion, from the US market.

In Europe, the Middle East and Africa, the company earned more than $21 billion, or more than 30 per cent of its total sales.

Alphabet’s operating income dropped 13.3 per cent on an annual basis in the first quarter to about $17.4 billion. Its earnings for each share dropped 4.8 per cent yearly to $1.17.

Google services business — which includes advertisements, Android, Chrome, hardware, Maps, Search, Google Play and YouTube — accounted for nearly 89 per cent of the company’s total sales.

It added almost $61.9 billion to overall revenue, nearly 0.80 per cent more than the first quarter of 2022.

Google’s advertising revenue from Search, YouTube and other businesses dropped slightly to about $54.5 billion in the first quarter.

The total revenue from the cloud business grew an annual 28 per cent to about $7.4 billion in the March quarter.

Google Cloud includes the company’s infrastructure and data analytics platforms, collaboration tools and other services for enterprise customers.

It generates revenue mainly from fees received for cloud platform services and workspace collaboration tools.

Alphabet said its operating income in the cloud segment reached $191 million during the quarter. It improved from the first quarter of last year, when the division’s loss was $706 million.

The company’s operating loss from other bets, or subsidiaries, reached about $1.2 billion in the last quarter, expanded from a loss of $835 million in the same period 2022.

Other bets are derived mainly through the sale of internet offerings, as well as licensing and research and development services.

This includes Alphabet’s X lab, self-driving unit Waymo and other non-Google companies.

Alphabet spent more than $11.5 billion on research and development, nearly 16.4 per cent of its total sales in the first quarter. This was about 26 per cent more than the R&D expenditure for the same period in 2022.

“We remain committed to delivering long-term growth and creating capacity to invest in our most compelling growth areas by re-engineering our cost base” said ” Ms Porat said.

YouTube added nearly $6.7 billion to Alphabet’s revenue, dropping about 2.5 per cent annually.

Google’s total acquisition costs stood at more than $11.72 billion, down nearly 2.4 per cent on an annual basis, against analysts’ expectations of $11.78 billion.

TACs are payments that search companies make to affiliates and online companies for bringing traffic to their websites. It is a major expense for companies such as Google and Yahoo.

Alphabet’s total cash, cash equivalents and marketable securities reached almost $115.1 billion at the end of March, from $113.7 billion at the end of last year.

Updated: April 26, 2023, 7:21 AM