Here's Why Google's Report Is Just Good Enough

Key Points

• The company beat analyst expectations.
• Their cloud computing business is finally generating a profit. 
• The numbers weren't a complete knockout, but they'll boost tech stocks.

Last night, Alphabet Inc NASDAQ: GOOGL, the parent company of Google, announced its first-quarter earnings, revealing strong financial results that beat both market and analyst expectations. Just like with Microsoft Corp’s NASDAQ: MSFT earnings, the strong beat will be a tailwind for many tech companies who've had to endure a long winter. With markets still feeling the fallout effects of the SVB collapse, solid numbers from the tech titans is a perfect antidote, and this will buoy the tech-heavy NASDAQ. 

Alphabet's EPS came in well ahead of the consensus, while their revenue did the same. The report also highlighted decent momentum in the company's advertising revenue, as well as its YouTube and cloud computing units. 

The Numbers

The brightest parts of Alphabet's first quarter financial performance came from its search and advertising business, which generated more than $40 billion for the quarter. This will have been a number that was closely watched as the ongoing economic downturn and dwindling consumer demand do not tend to favor online advertising or spending. In addition to its advertising and YouTube businesses, Alphabet's cloud computing division also showed strong growth, generating $7.4 billion in revenue for the quarter, representing a solid increase of 28% compared to the same quarter last year.

This was picked up on by CEO Sundar Pichai, who, during the earnings call, said that "We are pleased with our business performance in the first quarter, with Search performing well and momentum in Cloud." Pichai also highlighted the company's focus on AI, making it clear that AI is going to play a big role in the future of Google, just like with Microsoft. The company is investing heavily in AI research and development, with Pichai noting that AI-powered search and other AI-powered services will be a significant area of growth for the company in the coming years.

As a result of the strong earnings results, the company's shares immediately popped in the after-hours session. Though they had cooled somewhat by the time the session ended, early trading on Wednesday suggested they would open up. 

Aside from the numbers removing uncertainty and doubt around the company's revenue and profits, shares will be buoyed by the authorization of an additional $70 billion worth of share repurchases by the board. This is one of the strongest signals a company can give to the market and says they believe that shares are trading for well under what they consider fair value. In essence, if the company is confident enough to put its money where its mouth is, investors should also be happy to do so. 

Digesting the results from both Alphabet and Microsoft, Brent Thill from Jefferies said that the two tech titans' positive numbers together "should help broader technology stocks regain momentum." Indeed, they're both regarded as industry bellwethers, so both of them being able to land decent analyst beats bodes well for the broader market. 

Getting Involved

Alphabet's shares have been comparatively sluggish compared to their peers since Q4's low and are only up about 20%. To their credit, they are looking technically sound as they continue to consolidate after last year's brutal sell-off. Higher lows have also been set since November, so it's fair for investors to look up when thinking about where the stock is headed next. A strong earnings report, reinforced by the same from their peers at Microsoft, should clear the way for shares to break further above $100 and stay there now indefinitely. Alphabet isn't a stock that likes to trade in the double digits, and it's after putting in a long shift there. 

The company will still have to navigate a poor advertising environment, as well as increased competition to YouTube from social media apps like TikTok. Still, management has been doing a reasonably good job so far. It doesn't make for pretty reading, but they've been quick to cut costs through mass layoffs, as well as real estate and employee services cost reductions. It mightn't have been the knockout report that the most optimistic of bulls were hoping for, but it should be good enough to keep things on the right track.