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- Q1 results for Alphabet weren‘t a knockout but they were reassuring during what is a turbulent macroeconomic and competitive environment for the advertising giant.
- Quarterly sales increased 6% in constant currency terms (3% actual) to $69.7bn while operating profits fell to $17.4bn due in no small part to $2.6bn in restructuring charges as the company downsized to prioritise profitability.
- That core ad revenue grew despite many advertisers pulling back on spending as consumers and businesses tightened their belt was a welcome development. So, while 6% growth wasn‘t incredible, it was welcome all the same.
- The challenge of rapidly improving chat bots and large language model-derived methods for answering queries presents a very real threat to Alphabet. But the company is not a laggard in AI, instead management need to confront this challenge by more quickly rolling out their own internally developed options and updating core products to meet consumer demands. Thankfully it looks like they‘re doing just this.
- At 23 times trailing earnings Alphabet is not cheap but it very, very rarely is. At the end of the day this giant of advertising is still growing sales, has multiple levers to pull to enhance already impressive profitability and cash generation, has a fortress-like balance sheet and is buying back its own shares at a rapid clip. We think all of those aspects make it worth considering in May.
