Google parent Alphabet Inc. announced record profits for the second consecutive quarter and a $50 billion share buyback scheme. At the same time, they warned that a note of caution is warranted as the surge of ad sales and record usage levels is expected to decline as the pandemic eases and restrictions are lifted.
The fact that the current quarter did not show such a slowdown surprised many analysts. Consumer activity online has remained higher than expected and this is the main reason for the bullish figures. Alphabet’s figures were higher than analysts’ estimates and almost surpassed the record sales figures of the fourth quarter.
Overall quarterly sales were $55.3 billion, a rise of 34% and a figure that was close to the fourth quarter’s $56.9 billion. This exceeded analyst’s forecasts of a 26% year-on-year growth. A proportion of this revenue was as a result of Google’s buyout of smartwatch manufacturer Fitbit, although exactly how much was not specified.
Google’s market-leading ad business was the largest contributor to revenue and accounted for 81% of the quarter’s total. Google’s cloud service still returned an operating loss, but the figure was narrowed at 44% to $974 million for the quarter.
The profit for the quarter was $17.9 billion, which topped the fourth quarter’s profit of $15.2 billion. This equates to $26.29 per share, far greater than analysts’ expectations, which was for a profit of $15.88 per share.
Alphabet’s shares rose over 4% to $2,390.10 during extended trading.
The figures suggest that Google services like its search engine and YouTube may hold onto gains made throughout the pandemic, as people interacted online and used more internet streaming and shopping services. This surge in usage pushed Google ad revenues up by 32% year-on-year and its cloud services rose by 45.7%.
The note of caution sounded by Alphabet is because some sort of slowdown is still expected, although the figures suggest it might not be as drastic as feared. Alphabet’s main revenue market, the USA, has fully vaccinated about 17% of its population, and many services like bars and in-person dining has resumed.
Another sign of the recovery is from the airports. Last month security screening across U.S. airports had their busiest day for over a year. These recovery signs are good for the economy, but Alphabet expects it to have an impact on its revenue stream.
Just how big an impact remains to be seen. Alphabet’s Chief Financial Officer, Ruth Porat told analysts that – “it’s too early to forecast the extent to which these changes in consumer behavior and advertising spend will endure.”
There are also looming legal issues to contend with. Ongoing discussions at a state level in the U.S., E.U. and the U.K. are likely to produce new legislation aimed at curbing some of the big tech companies’ stranglehold on their markets. New taxes are also likely to be introduced, as well as existing loopholes being closed.