The results of Alphabet have turned out better than market expectations, and the company's prospects in terms of AI and cloud segment growth, as well as the advertising segment future, are positively perceived by investors. Another warmly received factor by the market is the return to growing revenue dynamics from the cloud segment. Alphabet has also announced its first-ever dividend and a $70 billion share buyback program.
Results well above expectations
In 1Q24, the company achieved revenues of $80.54 billion (+15.41% y/y), surpassing consensus by 1.9%. Among the segments, the most positively received information is the maintenance of revenue growth dynamics from Google Cloud. Although Alphabet still cannot boast figures as high as Microsoft (Azure segment increased by 31% YoY in 1Q24), despite having a smaller market share than its competitor, the difference in dynamics is not as huge as in previous quarters.
Alphabet 1Q24 results. Source: XTB Research, Company's financial statement
A very good signal is also the strong dynamics in the advertising segment, which continuously remains the main driver of the company's revenue growth. Revenues in this segment increased to $61.66 billion and accounted for 87% of the company's total sales. The most dynamic segment was YouTube advertising, which increased by 20.87% y/y (compared to the predicted growth of 15.46%).
Revenues by segments. Source: XTB Research, Bloomberg
The company is also improving profitability. The operating results of each segment (except for Other Bets) grew faster than revenues. The most significant increase in operating income was in the Google Cloud segment (+371.2%). This sets a positive tone for the potential of the company's segment to achieve a positive operating result for the entire year 2024.
Operating income segment results. Source: XTB Research, Bloomberg
Compared to the competition, the cloud segment used to be Alphabet's weakness. At the end of 2023, the company was responsible for a 7% market share, placing it far behind Microsoft (20%) and Amazon (+31%). Furthermore, despite its smaller size, this segment is growing slower than Microsoft's Azure. However, the results for 1Q24 make the prospect of accelerating growth dynamics in this segment increasingly more probable. Alphabet has the opportunity to benefit, among other sectors, in retail sales, where large companies may prefer to use its services instead of Amazon, which remains their competitor.
Dividend and buy-back
The decision to issue the first dividend in history also sends a strong signal to investors. Alphabet currently has a strong balance sheet and sees no reason not to use its strong cash reserves (cash, cash equivalents, and short-term investments / liabilities = 0.94) to share them with investors. The company announced that it will start shares buy-back program worth 70 bln $, and the planned dividend is $0.2 per share. The company plans to continue paying quarterly dividends in the future.
In pre-session trading, Google's results were very positively received by investors, with the price jumping by 12% to around $174.5. Such an opening not only means a complete offset of losses from the previous day but also sets a new ATH level.
Source: xStation
