Largely defying a macroeconomic, geopolitical and technological maelstrom that has gutted other companies’ earnings, Google parent Alphabet Inc. on Tuesday reported financial results that fell slightly short of Wall Street estimates, pushing its shares down 4% in after-hours trading.
The company also announced a $70 billion share buyback program, a major increase from $50 billion authorized last year.
Alphabet GOOGL, -3.59% GOOG, -3.04%, the most dominant in digital advertising worldwide, reported net income of $16.44 billion, or $24.62 a share, in its fiscal first quarter, compared with net income of $17.93 billion, or $26.29 a share, in the same quarter last year.
Revenue after removing traffic-acquisition costs was $56.02 billion, compared with $45.6 billion in the year-ago period. Overall revenue improved 23% to $68.01 billion. Analysts surveyed by FactSet had estimated net income of $25.74 a share on ex-TAC revenue of $56.1 billion and total revenue of $68.05 billion.
Alphabet’s operating-profit margin was 30% in the quarter, as it was in the same quarter a year ago.
“Q1 saw strong growth in Search and Cloud, in particular, which are both helping people and businesses as the digital transformation continues,” Alphabet Chief Executive Sundar Pichai said in a statement announcing the results.
But in a webcast late Tuesday, company Chief Financial Officer Ruth Porat warned of potentially choppy waters in the current quarter because of suspended commercial activities in Russia and a pullback in brand advertising in Europe. [About 1% of Alphabet’s 2021 revenue came from Russia, most of it in advertising, she added.]
Google’s numbers, while not especially strong, underscored a diverse business model that has reduced its exposure to several factors — inflation, lingering supply-chain issues, the war in Ukraine, strict privacy rules imposed by Apple Inc. AAPL, -3.73% — that recently punished Snap Inc. SNAP, -4.08%, and are expected to bruise Facebook parent Meta Platforms Inc. FB, -3.23%, Twitter Inc. TWTR, -3.91% and Pinterest Inc. PINS, -3.90% when they report earnings this week.
In a note Tuesday, Aaron Kessler, internet analyst at Raymond James, was most positive about Alphabet’s prospects despite “generally slowing” online advertising growth in the first quarter.
“After several consecutive quarters of unprecedented growth, Google’s earnings miss suggests that the pandemic boom is now giving way to more down-to-earth expectations,” Paul Verna, an analyst at Insider Intelligence, said. “Inflation and supply chain disruptions continued to put downward pressure on ad spending. As a market leader in digital advertising, Google has been a bellwether for the industry, so today’s results could spell trouble for other ad-supported tech companies including Meta, Snap, and Twitter.”
Google’s total advertising sales rose to $54.7 billion from $44.7 billion a year ago. Search was $39.6 billion, vs. $31.9 billion a year ago.
YouTube ad sales continued to grow, to $6.9 billion from $6 billion a year ago. But video business tapered under escalating competition from TikTok and streaming services led by Walt Disney Co.’s DIS, -3.48% Disney+, analyst Verna said.
Google’s stock has slid 18% so far this year. The broader S&P 500 index SPX, -2.81% has skidded 12% in 2022.
Alphabet’s financial performance affirmed what Justin Patterson, equity research at KeyBanc Capital Markets, calls the “diversified” advertising model that makes the company “the least fundamental risk” to headwinds that have buffeted and battered ad competitors Meta and Pinterest.