Alphabet Posts Strong First Quarter, Initiates Dividend, Launches Huge Buyback

Image: Alphabet’s valuable properties continue to put up nice revenue growth.

By Brian Nelson, CFA

On April 25, Alphabet reported better-than-expected first quarter results on both the top and bottom lines. Revenue increased 15%, or 16% on a constant currency basis in the period, while the firm’s operating margin surged higher roughly 7 percentage points, to 32%. Net income leapt an impressive 57% in the quarter on a year-over-year basis, while diluted earnings per share came in at $1.89 versus $1.17 in last year’s quarter and well above the consensus forecast.

We liked what we saw almost across the board in Alphabet’s quarterly results. Google Search & other revenue increased 14.4% while YouTube ad revenue growth came in at an impressive 20.9%. Its total Google Services revenue increased to $70.4 billion, up 13.6% on a year-over-year basis, while operating income in the division leapt to $27.9 billion from $21.7 billion in the same period of last year, reflecting an impressive 28.3% increase. Google Cloud became incrementally more profitable in the quarter, while its ‘Other Bets’ segment continued to be roughly a $1 billion headwind on overall operating income expansion.

Management commentary in the press release was upbeat:

Our results in the first quarter reflect strong performance from Search, YouTube and Cloud. We are well under way with our Gemini era and there’s great momentum across the company. Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation…Our strong financial results for the first quarter reflect revenue strength across the company and ongoing efforts to durably reengineer our cost base. We delivered revenues of $80.5 billion, up 15% year-on-year, and operating margin expansion.

The quarterly performance was solid by almost every measure, and the executive team revealed that their focus remains on being investor friendly. Alphabet’s board declared its first ever quarterly cash dividend of $0.20 per share, payable on June 17, and an additional buyback program to the tune of a whopping $70.0 billion. Needless to say, we were quite pleased. 

Alphabet ended the quarter with $108.1 billion in total cash and marketable securities against a long-term debt load of $13.2 billion, so Alphabet has an ample net cash position to support cash returns to shareholders. For the quarter ended March 31, 2024, Alphabet’s free cash flow totaled $16.8 billion, slightly lower than the same period last year due to a near doubling in capital spending, but nonetheless, the measure was healthy. We continue to like Alphabet as a top weighting in the Best Ideas Newsletter portfolio.

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