Alphabet and MS Exceed Q1 Earnings Expectations... Rise in After-Hours Trading

Google's parent company Alphabet and Microsoft (MS), among other major U.S. big tech firms, announced first-quarter results that exceeded expectations this year. Despite concerns about an economic recession, their core businesses such as advertising and cloud services performed well, combined with various cost-cutting efforts including workforce restructuring that began late last year.

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On the 25th (local time), Alphabet reported first-quarter revenue of $69.79 billion, a 3% increase compared to the same period last year. This surpassed analysts' expectations of $68.95 billion. Revenue excluding partner payouts also exceeded market forecasts, reaching $58.07 billion versus the expected $56.98 billion.

Net income was $15 billion, and earnings per share (EPS) were $1.17, both beating expectations. The market had initially anticipated Alphabet’s EPS to be $1.09.

This strong performance was driven by the search advertising business holding up well despite the economic downturn and competition. Google’s advertising revenue remained solid, and the cloud services segment continued to see steady demand. Notably, Google’s cloud business recorded an operating profit of $191 million for the first time ever. Additionally, Alphabet has been aggressively pursuing cost reductions, including layoffs, to maintain profits as advertisers cut budgets.

Evelyn Mitchell, senior analyst at Insider Intelligence, stated, "Search functionality will be an early indicator of Google's ability to maintain dominance in the area that accounts for most of its revenue."

Furthermore, Alphabet announced a $70 billion share repurchase plan. When a company buys back its own shares, the number of shares available in the market decreases, which is generally positive for the stock price.

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MS also reported better-than-expected results this year, driven by growth in its cloud computing business in the first quarter.

For the third quarter of the fiscal year (January to March 2023), MS posted revenue of $52.9 billion, a 7% increase year-over-year. Earnings per share (EPS) were $2.45. Both figures exceeded analysts' forecasts of $51 billion in revenue and $2.24 EPS.

The cloud computing business, MS’s main revenue source, led the strong performance. Revenue in this segment reached $221 billion, surpassing the market expectation of $219 billion. MS reported that its cloud service Azure grew by 27%. Recently, MS has partnered with OpenAI to accelerate its artificial intelligence (AI) business, securing profits in the cloud segment.

The impact on MS’s Windows business was also less severe than expected. Experts had predicted that due to the recession, PC demand would weaken, resulting in Windows segment revenue of $12.19 billion, but MS reported a higher revenue of $13.3 billion.

Following the better-than-expected earnings announcements after market close, Alphabet and Google shares are rising. In after-hours trading, Alphabet’s stock price increased by 5.9%, and MS’s stock price rose by 5%.

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