Google parent Alphabet ( GOOGL ) reported earnings after the market closed on April 25. Here’s what our analyst thought about the latest quarterly numbers.
• Estimated fair value: $179
• Morningstar rating: 3 stars
• Morningstar Financial Moat Rating: High
• Morningstar uncertainty rating: Broad
We raise our fair value estimate to $179 from $171 per share. With the jump in the share price following the report, the shares now look fairly valued.
What we thought of Alphabet’s report
Alphabet delivered strong results in the first quarter, with revenue growth accelerating and restructuring efforts driving margin expansion. The company also instituted a dividend, which will amount to about $10 billion annually at first, and authorized an additional $70 billion in share buybacks. While growth is unlikely to sustain this quarter’s pace for the full year, Alphabet’s results position it to exceed our expectations for the year.
As with Meta, the company is ramping up efforts to develop artificial intelligence technology and expects capital spending to continue at its current pace, meaning full-year spending of nearly $50 billion, compared with about $32 billion in each of the past two years. Alphabet is taking a tougher approach to costs than its AI rival, continuing to cut headcount and consolidate teams to cushion the impact of infrastructure investments on profitability.
Google Search and YouTube advertising higher
Total revenue rose 15% year-on-year compared to 13% last quarter, continuing the accelerating trend of the past year, although the leap year added about 1% to growth. Search advertising increased by 14%, with online retailers, including those based in Asia, driving the growth. The Asian retailers started increasing their spending in the second quarter of last year, which will create headwinds for the rest of 2024. YouTube advertising increased by 21%, which management attributed to a rapid improvement in the monetization of Shorts, in addition to an increase in usage. The cloud business also delivered impressive growth, with revenue up 28%, the best performance in more than a year, as AI use cases fueled growth in the compute and workspace productivity businesses.
Continued strong subscriber growth drove an 18% year-over-year increase in revenue from other Google services. As the company announced earlier this year, YouTube TV now has more than 8 million subscribers, and we estimate that the service contributed about half of the growth in this segment.
Operating margin increased by nearly 4 percentage points to 32.5%, excluding major restructuring costs a year ago. Management expects efficiencies across the business to offset rising depreciation expense, allowing operating margin to expand in 2024 compared to the prior year. Capital expenditures nearly doubled year-over-year to $12 billion in the quarter, resulting in free cash flow falling slightly to $16.8 billion.
SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdt c d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhN l VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk
Membership is required to read this article
Become a member for free
