By Greg Bensinger and Akash Sriram
(Reuters) – Alphabet announced its first-ever dividend and a $70 billion share buyback on Thursday. This cheered investors who sent shares up nearly 16% after the bell.
The Google parent company is returning capital and spending billions of dollars on data centers to catch up with competitors in the field of generative artificial intelligence. The dividend is 20 cents per share.
Just three months ago, Meta Platforms, Alphabet’s major tech rival, announced its own all-time dividend, a move that boosted the social media company’s stock market value by $196 billion the next day. Amazon.com remains the lone holdout among the big tech companies that don’t offer a dividend.
Alphabet exceeded expectations for the quarter on revenue, profit and advertising – numbers that are all being closely watched.
“Alphabet’s announced dividend payouts and buybacks, on top of solid earnings figures, are not only a breath of fresh air for the technology market as a whole, but also a very intelligent strategy for the search engine giant as it faces a difficult time of year. said Thomas Monteiro, senior analyst at Investing.com.
Alphabet’s after-hours stock surge of nearly 16% after the report increased its stock market value by about $300 billion to more than $2 trillion.
In a call to discuss the results, CEO Sundar Pichai touted Google’s AI offering as a boon to key search results. “We are encouraged that we are seeing an increase in search usage among people using the AI summaries,” he said.
Revenue was $80.54 billion for the quarter ended March 31, compared with estimates of $78.59 billion, according to LSEG data.
The search company’s first-quarter gains were driven by rising demand for its cloud services due to increasing adoption of artificial intelligence and steady ad spending.
Google reported that ad revenue rose 13% to $61.7 billion in the quarter. That compares with the average estimate of $60.2 billion, according to LSEG data.
Alphabet is coming off a fourth quarter in which ad sales missed the mark, sending its shares tumbling amid increasing competition from Amazon.com, Facebook and newcomers like TikTok. The latter faces an uncertain future after President Joe Biden signed a bill that would ban the popular app if it is not sold within the next nine to 12 months.
Meanwhile, Google Cloud revenue grew 28% in the first quarter, boosted by a boom in generative AI tools that rely on cloud services to deliver the technology to customers.
Alphabet’s capital expenditures were $12 billion, up 91% from a year earlier, a figure that Gabelli Funds portfolio manager Hanna Howard called “higher than expected.”
Still, CFO Ruth Porat said on a call with analysts that she expects such spending to remain at that level or higher for the rest of the year as the company spends money building artificial intelligence offerings.
Despite the increase in capital expenditure, Porat said operating margin would be higher in 2024 than last year, without elaborating.
Google’s cloud services are attractive to venture-backed startups developing generative AI technologies because of their pricing and ease of integration with other tools, investors and experts have previously said.
Google has touted its AI-powered chatbot, Gemini, as a panacea for automation, from coding to document creation. However, the software was widely criticized after it was found to generate historically inaccurate images, including of former US leaders and German soldiers from World War II.
Google says it is aware of the issues and is working to resolve them.
(This story has been refiled to correct spelling of ‘buyback’ in paragraph 1)
(Reporting by Akash Sriram in Bengaluru and Greg Bensinger in San Francisco; additional reporting by Noel Randewich in Oakland, California, and Aditya Soni in Bengaluru; Editing by Sriraj Kalluvila and Matthew Lewis)
