Alphabet reports record profit and announce share buyback plan

According to the latest news, last Tuesday, Google’s parent company, Alphabet Inc reported a record of a profit for the second consecutive quarter and announced plans of a $50 billion share buyback. However, the company also warned that a surge in usage and ad sales during the pandemic may slow because more people are resuming their in-person activities all over the world.

As per the report, online consumer activity remained elevated in the first quarter. Alphabet also beat analysts’ revenue estimates and nearly surpassed the sales estimates set for the fourth quarter.

Compared with last year, ad sales of Google jumped as much as 32% in the first quarter. Refinitiv tracked that it was also above analyst expectations. In the first quarter, cloud sales increased 45.7% which is in line with estimates. During the extended trading session, Alphabet shares rose about 4.3% to $2,390.10.

Alphabet reports record profit and announce share buyback plan
Alphabet reports record profit and announce share buyback plan

It seems Google services like its search engine and YouTube has the potential to hold on to gains made since lockdowns and other pandemic restrictions that forced people to shop and communicate online. Google is the global market leader in terms of the ad business. It’s as business sales accounted for 81% of Alphabet’s first-quarter revenue. According to Schindler, d retail, technology, and consumer product companies were among big search advertisers in the quarter.

By the end of the first quarter, almost 17% of people in the United States were vaccinated which was Alphabet’s top core region in terms of revenue. After the vaccination drive, activities like in-person dining resumed in big cities in March, and security screenings at U.S. airports had their busiest day in a year. On Tuesday, Ruth Porat, Alphabet’s Chief Financial Officer told analysts “it’s too early to forecast the extent to which these changes in consumer behavior and advertising spend will endure.”

When asked about whether Google has seen a recovery in spending by travel and other industries that were major customers before the pandemic, Google Chief Business Officer Philipp Schindler and Porat both declined to make a comment.

Alphabet’s quarterly sales rose 34% to $55.3 billion which is above analysts’ estimate of 26% year on year. In the fourth quarter, it reported a growth of close to $56.9 billion. Alphabet’s quarterly profit was $17.9 billion which is $26.29 per share. It beat the estimates of $15.88 per share.

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Analysts believe Google’s revenue benefited a lot from the acquisition of smartwatch maker Fitbit. Fitbit was acquired by Google back in January. As much as $4 billion of earnings came from unrealized gains in venture capital investments and recalculating depreciation of some data center equipment. For the first time since the incorporation of Alphabet in 2015, its sales pushed operating margins up to 30%. However, its costs also began to pick up due to hiring, legal matters, and the building of new facilities.

Alphabet reports record profit and announce share buyback plan
Source: Reuters

Last year, in 2020, Alphabet suffered its slowest sales growth in 11 years but posted record profit and boosted its cash hoarding by $17 billion after slowing its hiring and new facility construction.

The share repurchase authorization by Alphabet’s board follows a $25 billion buyback program which was announced way back in 2019. Jefferies analyst Brent Thill estimates Alphabet now has $56 billion left to buy back shares.

Interestingly, during the same time, Google Cloud which is rival to the cloud businesses of Amazon and Microsoft narrowed its operating loss to 44% to $974 million. However, Porat told analysts there is not much to be happy about it because this is most probably a one-time factor. He even pointed out that depreciation was also at play at the same time.

In the last year, shares of Alphabet which is the 184th company of S&P 500 index have surged as much as 80%. On contrary, shares of rivals like Facebook rose by 62% during this time period.

In recent years, several concerns about Google’s long-term prospects have emerged but almost none significantly affected the sales. It is noteworthy that discussions about changing U.S. and European laws to impose new laws on companies like Google and Facebook due to their privacy concerns and artificial intelligence potentials have also lagged as the pandemic distracted legislators. Concerns continue to emerge almost regularly for such big companies.

For example, last Monday, streaming TV technology company Roku accused Google of engaging in anticompetitive behavior for its YouTube and hardware businesses. Google simply termed the accusation as “baseless claims.”

Michael Turner
Michael Turner is an environmental activist with broad, deep experience in print and online writing, publication and site management, news coverage, and editorial team management.