Alphabet stocks rose in after-hours trading on Tuesday after the tech firm beat analyst expectations for first-quarter earnings, marking an unexpectedly bright spot in the otherwise struggling tech sector.
The company reported first-quarter revenue of $69.8bn, up 3% year-over-year and above analyst predictions of $68.9bn. Its cloud business reported a profit for the first time since its launch, taking in $191m.
Shares were up nearly 3% in after-hours trading, as investors were heartened by Alphabet’s announcement of a $70bn stock buyback.
In a statement accompanying the report, the company’s chief executive, Sundar Pichai, acknowledged the growing momentum of its cloud services and Alphabet is continuing to invest in search capabilities, including in the use of artificial intelligence.
“We introduced important product updates anchored in deep computer science and AI,” he said. “Our North Star is providing the most helpful answers for our users, and we see huge opportunities ahead, continuing our long track record of innovation.”
Artificial intelligence was a big focus of the day, mentioned upwards of 60 times during a call with investors accompanying the report. Pichai said the company would accelerate its development of AI, with safeguards in place. After the success of Microsoft-owned ChatGPT, Alphabet announced Bard – its own AI chatbot – in February.
“As we continue to bring AI to our products, our AI principles and the highest tenets of information integrity remain at the core of all our work,” Pichai said.
While in previous earnings reports Alphabet fared better than some of its peers such as Meta and Twitter, it had stumbled in recent months, announcing in August it would freeze hiring. In January it cut more than 12,000 jobs, or 6% of its global workforce, and a leaked internal memo in March revealed Alphabet would be cutting back on some employee perks in an effort to save money.
Tuesday’s report suggests a potential recovery, even as the YouTube parent company has struggled to compete with the meteoric rise of TikTok, reporting in its previous earnings that YouTube ad revenue in quarter four of 2022 shrank for the first time in the company’s history – falling about 2% to $7bn from $7.2bn year over year.
YouTube ad revenue was down 2.6% in the quarter, but at $6.69bn still beat the $6.64bn expected by analysts. The company is continuing to invest in short-form video to compete with TikTok, and Pichai stated in the call on Tuesday that YouTube Shorts now has 50bn daily views, up from 30bn this time last year.
The rare beat comes as the tech sector continues to hobble through a downturn. All eyes will be on ongoing earnings reports, with Meta set to release its own on Wednesday and Apple reporting on Thursday.
The company stated in its report that despite layoffs, its headcount was up 16% year over year. But despite the relatively positive report, investor optimism remains “modest”, said Max Willens, a senior analyst at market research firm Insider Intelligence.
“Its cloud segment turning a profit is notable, and a testament to management’s diligence in steering Cloud toward profitability. But the reality is that Google Cloud remains comfortably behind its two most important competitors, and its growth is slowing,” he said.
He added that Google’s core business, advertising revenue, remains “under threat”, with YouTube revenues declining again and other revenues rising less than 2%. “Google’s core business is facing the most serious challenges it has encountered in quite some time,” he said.
