Google parent Alphabet drops on weaker first-quarter earnings

Alphabet, the world's largest provider of search and video advertisements, dropped more than 4.3 per cent in extended trading after it reported weaker than expected earnings for the first quarter.

The company reported a net profit of more than $16.4 billion in the three months ending on March 31, nearly 8.3 per cent down on an annual basis. It was 20.3 per cent or $4.2bn less on a quarterly basis.

Revenue at Google’s parent company during the period rose almost 23 per cent annually to more than $68bn. But it was 9.7 per cent down compared to the quarter that ended on December 31.

The company’s stock was trading at $2,270 a share in after-hours trading.

“Q1 saw strong growth in search and cloud, in particular, which are both helping people and businesses as the digital transformation continues,” said Sundar Pichai, chief executive of Alphabet.

“We will keep investing in great products and services … and creating opportunities for partners and local communities around the world."

Google services business — which includes advertisements, Android, Chrome, hardware, Maps, Search, Google Play and YouTube — accounted for more than 90 per cent of the company’s total sales.

It added more than $61.4bn to overall revenue, almost 20.1 per cent more than the first quarter of 2021.

Google’s advertising revenue from Search, YouTube and other businesses increased 22.3 per cent yearly to more than $54.6bn in the first quarter.

The total revenue from the cloud business grew an annual 43.8 per cent to more than $5.8bn.

Alphabet said its operating loss in the cloud segment reached $931 million during the quarter, which narrowed from a $974m loss in the same period in 2021.

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.

This month, Google announced it would invest about $9.5bn in its US offices and data centres this year as it seeks to get more employees back into its buildings as Covid-19 restrictions ease.

The company aims to create 12,000 jobs as part of the investment.

The California-based company’s revenue from other investments, or subsidiaries, increased more than 120 per cent yearly to $440m.

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 $9.1bn on research and development, nearly 13.4 per cent of its total sales in the first quarter. It was 21.8 per cent more than the R and D expenditure of the same period in 2021.

“We are pleased with Q1 revenue growth of 23 per cent," chief financial officer Ruth Porat said.

"We continue to make considered investments in capex [capital expenditure], R&D and talent to support long-term value creation for all stakeholders."

YouTube added more than $6.8bn to Alphabet’s total revenue, surging more than 14.3 per cent annually.

Google’s total acquisition costs stood at nearly $11.99bn, up 23.5 per cent on an annual basis. It exceeded analysts’ expectations of $11.69bn.

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

Alphabet’s total cash, cash equivalents and marketable securities reached more than $133.9bn at the end of last year, a year-on-year drop of more than 4 per cent.

Alphabet, which employs 163,906 people globally, earned almost 46.6 per cent of its first quarter revenue or more than $31.7bn from the US market.

In Europe, the Middle East and Africa, the company earned more than $20.3bn or 30 per cent of its total sales.

In the last quarter, Alphabet’s earnings for each share dropped 6.4 per cent yearly to 24.62, missing analysts’ estimates of $25.91.