Google's advertising business is strong, with net profit rising by 46%, and continued to expand capital expenditure, announcing US$70 billion in stock buybacks | Financial News

Source: Wall Street Insights

The first-quarter results of Alphabet, Google's parent company, announced after the market closed on Thursday showed that thanks to the continued strong performance of its search advertising business, the company's revenue and profit both exceeded analysts' expectations, partially offsetting the impact of the slowdown in the growth of the cloud computing department. Moreover, while capital expenditure increased significantly in the first quarter, the company stated that it would continue to substantially increase capital expenditure, which caused the company's stock price to rise by 6% at one point after the market closed.

The following are the key points of Alphabet's financial report:

**Main Financial Data**:

- **Revenue**: Alphabet's revenue in the first quarter was $90.23 billion, higher than the analysts' expected $89.1 billion. The revenue after deducting partner commissions in the first quarter was $76.5 billion, higher than the average analysts' expectation of $75.4 billion.

- **Net Profit**: Alphabet's net profit in the first quarter was $34.5 billion, surging by 46% year-on-year.

- **Earnings per Share**: Alphabet's earnings per share in the first quarter was $2.81, far exceeding the analysts' expected $2.01.

- **Capital Expenditure**: Alphabet's capital expenditure in the first quarter was $17.2 billion, higher than $12 billion in the same period last year and slightly higher than the market's estimated $17.1 billion.

**Business Segment Data**:

- **Google Advertising Revenue**: Google's advertising revenue in the first quarter was $66.89 billion, higher than the analysts' expected $66.39 billion.

- **Google Cloud Business**: Google Cloud's revenue increased by 28% year-on-year in the first quarter, reaching $12.26 billion, falling short of the analysts' expected $12.27 billion.

- **YouTube Advertising Revenue**: Google's YouTube advertising revenue in the first quarter was $8.93 billion, while analysts expected $8.94 billion.

Alphabet also announced a $70 billion stock buyback plan on Thursday, and the quarterly cash dividend per share of stock will increase by 5% to $0.21. After the release of the financial report, Alphabet's Class A shares rose by 6% at one point after the market closed, and then fell back to around 4%.

Sundar Pichai, CEO of Google, said:

"The search business continues to grow strongly, benefiting from the improvement in user interaction brought about by features like AI Overviews. Cloud computing is also growing rapidly, and there is strong demand for our solutions."

**Continuous Expansion of Capital Expenditure**

According to the financial report, Alphabet's investment in data centers, chips, and other AI infrastructure continues to expand. Capital expenditure in the first quarter soared to $17.2 billion, higher than $12 billion in the same period last year and slightly higher than the market's estimated $17.1 billion. The company expects its total capital expenditure in 2025 to reach $75 billion, which will be used for projects such as building data centers, a significant increase compared to $53 billion in 2024.

Analysts believe that US President Trump's trade policies have triggered concerns about an economic downturn, prompting companies to rethink their spending on advertising. Google is the second large technology company to release its financial report after Trump launched the global trade war. So far, Alphabet's stock price has fallen by about 17% this year. Like most of its peers, the company has been affected by concerns that tariffs may disrupt the supply chain and weaken consumer spending, and the market is also worried about the possible recession of the US economy as a result. However, analysts said that the digital advertising market remained robust in the first quarter.

The revenue of Google's core advertising business increased by 8.5% this quarter, reaching $66.89 billion, accounting for about 75% of the company's total revenue. Although this growth rate is lower than the 10.6% in the previous quarter, it is still higher than the analysts' expected 7.7%.

The revenue of Google's cloud computing department increased by 28% year-on-year, reaching $12.3 billion, lower than 30% in the fourth quarter of last year. However, the operating profit growth of this department was basically the same as that in the previous quarter, slightly higher than 140%, indicating that this business is becoming an important source of profit contribution for Google.

**Rise of AI Competitors, Search Business No Longer Secure**

In order to obtain a reasonable return on the increasing investment in the artificial intelligence competition, Alphabet must ensure the growth momentum of its search advertising and cloud computing businesses. Fierce market competition has forced the company and its competitors to make large investments in infrastructure, research and development, and talent.

Alphabet launched its most ambitious generative AI, Bard, in 2023, which was later renamed Gemini. Although the number of Gemini users has increased significantly, it still lags far behind OpenAI's ChatGPT and Meta AI.

Analysts believe that while Google benefits from the spending of AI start-ups on its cloud services and business tools, it is also accelerating its response to the threat posed by popular AI chatbots, which are being increasingly regarded as alternatives to Google Search by more consumers.

Evelyn Mitchell-Wolf, a senior analyst at EMARKETER, said that Google's search business has not yet fallen behind new rivals such as Perplexity and China's DeepSeek, but this situation is not impossible.

"As new competitors continuously optimize their services and attract more search traffic, it will no longer be a certainty for Google's search business to achieve double-digit growth."

Google's initial response to this threat is the "AI Overview" and "AI Mode" features in its search, which generate summary responses through generative AI and prominently display them before Google's web page links. The response to such features has been mixed so far. At the same time, Google's AI adjustments to search have also severely impacted the traffic of independent websites on the open web.

**Antitrust Litigation Continues**

When this earnings conference call was held, Alphabet was facing increasingly strict scrutiny from federal regulators. The US Department of Justice and multiple states filed an antitrust lawsuit against Google in 2020. Previously, a federal judge ruled that Google maintained its monopoly position by paying huge fees to iPhones, Android devices, and web browsers to make its search engine the default option.

The judge wrote in the ruling that the Department of Justice and the states that filed the lawsuit successfully proved that Google "intentionally carried out a series of anti-competitive behaviors to obtain and maintain its monopoly position in the publisher ad servers and advertising exchanges in the field of display advertising on the open web."

"For more than a decade, Google has tied its publisher ad servers and advertising trading platforms together through contract policies and technological integration, enabling the company to establish and protect its monopoly position in these two markets."

Currently, Google and the Department of Justice are having a trial on the "remedial measures" of the search engine ruling. Both parties will submit their opinions, and the judge will decide what corrective measures should be taken in the market. Google is trying its best to avoid being forced to divest some products, such as the Chrome browser.

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