Alphabet, the parent company of Google, noted a rise in its stock price in after-hours trading on Tuesday after it reported its financial performance for the first quarter of the year. During Q1 2023, the tech behemoth exceeded analyst estimates in a quarter that continues to be tough for the tech market, and one that was characterized by Google competing in the AI race against Microsoft and throwing its hat in the ring with Bard, its AI-powered chatbot and answer to the popular ChatGPT.
For the same period, Alphabet pocketed a total of $69.79 billion in revenue, exceeding the estimated $68.9 billion, according to Refinitiv. This marks an annual growth of 3% from the $68.01 billion it pocketed in revenue during the corresponding quarter in the previous year. Alphabet’s operating income dropped from $20 billion in Q1 2022 to $17.4 billion in the first quarter of this year, while diluted earnings per share (EPS) dropped to $1.17 per share, beating the estimated $1.07.
Alphabet also clocked a drop in its net income for the quarter – $15 billion. “We are pleased with our business performance in the first quarter, with Search performing well and momentum in Cloud. We introduced important product updates anchored in deep computer science and AI. 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,” said Sundar Pichai, CEO of Alphabet and Google.
Despite beating analyst estimates in revenue and EPS, the growth in the tech giant’s Search business slowed down in the first quarter. According to the earnings report, its revenues from Google Search and Other rose by 1.87% annually to $40.4 billion, marking a much slower growth than what was recorded in Q1 2022 (24.2%). Revenues from its YouTube Ads dropped by 2.6% to reach $6.69 billion for the quarter (but managed to beat analyst estimates of $6.64 billion). The fall in its revenue comes even as YouTube continues to intensify the competition against China’s TikTok, and has been increasingly focused on Shorts. Overall, revenues from Google Advertising dropped to $54.5 billion for the quarter that ended March 31, 2023.
“Resilience in Search and momentum in Cloud resulted in Q1 consolidated revenues of $69.8 billion, up 3% year over year, or up 6% in constant currency. We remain committed to delivering long-term growth and creating the capacity to invest in our most compelling growth areas by re-engineering our cost base,” Ruth Porat, CFO of Google and Alphabet, commented. Its Search business currently faces intense competition from the likes of Microsoft’s AI-powered Bing chatbot and OpenAI’s ChatGPT, and Bard is yet to be up to the mark. This is something that may have factored in the slower growth of the Search business in the quarter.
Still, AI remains a big focus for the company, and Pichai said that Alphabet will be accelerating its development of AI while having safeguards in place. “As we continue to bring AI to our products, our AI principles and the highest tenets of information integrity remain at the core of all our work,” he said. For now, Google is planning to add generative AI features to some of its most used products, such as Gmail and Docs, and very recently, it brought its Brain and DeepMind groups under the same umbrella of Google DeepMind organization.
Google Cloud turns profit
Its cloud-computing business, on the other hand, turned profitable for the first time in the three years Alphabet has been reporting operating metrics for the division. The cloud business – which includes the Google Cloud Platform as well as Google Workspace productivity software subscriptions – clocked $7.4 billion in revenue, while it recorded an operating income of $191 million in the quarter after it reported a loss of $706 million loss in Q1 2022.
Revenue in the Other Bets segment, which includes the self-driving car company Waymo, dropped to $288 million for the quarter, while its operating loss widened to $1.2 billion. To add to this, the company said its board authorized a $70 billion share buyback, and reported $2.6 billion in charges related to the layoffs and office space reduction during the quarter. For those who need a reminder, Alphabet joined the layoff wagon by laying off 12,000 employees — about 6% of its workforce — in January 2023, and Porat announced “multi-year” cuts to several areas, such as real estate and employee services.
