TOPLINE Alphabet, the company that owns Google, saw its stock drop more than 5% on Tuesday after it reported disappointing first-quarter earnings that showed a slowdown in revenue growth and an announcement of a $70 billion stock buyback. This was on top of the big losses it had already seen this month.
Alphabet’s first-quarter sales ($68 billion) and profits were a little lower than expected. This caused the company’s shares to drop by about 5% in after-hours trading.
Overall revenue was up from about $55 billion last year, but it grew at a much slower rate, up only 23% from last year, when revenue had grown 34% from 2020.
Alphabet’s main search advertising business grew after the pandemic when businesses spent more on marketing, but the company is now dealing with slowing revenue growth.
Google Cloud revenue was a bright spot, coming in a little bit higher than expected at $5.8 billion. However, advertising revenue from YouTube took a hit, coming in at about $6.9 billion instead of the $7.5 billion that was expected.
Alphabet’s board of directors also gave the company permission to buy back $70 billion worth of its own stock. This is a big increase from the $50 billion that was allowed last year.
Alphabet’s stock dropped nearly 4% on Tuesday, a day before it reported earnings. Big-tech stocks led the declines, which happened on another bad day for the markets when the Dow fell 800 points.
TANGENT:
In recent weeks, there has been a lot of uncertainty about tech stocks. Netflix’s big earnings miss and the fact that it lost subscribers for the first time in over a decade both added to this. The company said that it expects to lose more subscribers in the next three months because of more competition and “password sharing.” Reed Hastings, co-CEO of Netflix, said that the company might offer a lower-priced subscription tier with ads in order to get back to growth, but that this would take a few years to do.
Key quote: “The quarter is being shown in a bad light” because Alphabet didn’t meet expectations, but the real numbers “aren’t that bad, with some modest upside in the core search business,” says Adam Crisafulli, founder of Vital Knowledge. “YouTube is going to cause real worry, but at least it’s not another Netflix,” he adds, calling the $70 billion buyback permission “an added plus.”
Alphabet is one of the first big tech companies to report earnings for the first quarter. This comes at a time when investors are worried about the Federal Reserve’s aggressive interest rate hikes to fight inflation, which have caused the sector to lose a lot of money this year. So far in 2022, Alphabet’s stock is down about 17%, while the Nasdaq Composite index is down 19%.
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