To The Moon

Unlike $Meta Platforms, Inc.(META)$ ‘s huge plunge after its Q1 earnings, $Alphabet(GOOG)$ surged 12% following a same strong Q1 performance, with overall revenue growth beating and a new high in profit margins, and accelerated capital expenditure on AI.

Google rolled out a major action of "$70 billion buyback + dividend," towards its shareholders, which not only boosted market confidence but also reversed the lack of confidence in Google since the previous quarter. $Alphabet(GOOGL)$

Investment Highlights

• All major businesses exceeded market expectations. Total revenue was $80.5 billion, a year-on-year increase of 15.4%, surpassing the market consensus of $79 billion; of which advertising revenue was $61.7 billion, a total growth of 13%.

• YouTube's growth rate reached 20.9%, the highest among all search businesses, mainly due to the lower base last year. At the same time, the increase in short video business share, coupled with the off-season for film and television content in Q1, also allowed YouTube's user consumption market to continue to increase its total market share.

  

• The most surprising was the year-on-year growth of search advertising business by 14%, which was higher than the market's expectation of 11%. This is because the market previously believed that the introduction of AI would instead erode the share of traditional search advertising. However, this has not yet occurred in Q1, and the strong consumption has also led to an increase in advertising spending;

• The cloud business has begun to enjoy the dividends of AI. Google Cloud's revenue reached $9.6 billion, a year-on-year increase of 28%, higher than the market's expectation of $9.37 billion. At the same time, the backlog of contracts continued to increase by 14.2% sequentially, which is also considered that the incremental orders brought by AI will continue to benefit the company. $Microsoft(MSFT)$ , a cloud giant that released its financial report on the same day, also performed well, indicating that this is an industry-wide improvement;

  

• Profits continue to reach new highs, but it is also important to pay attention to the divergence of indicators. The operating profit margin expanded from 25% in the same period last year to 32%, also higher than the expected 28.6%. A major reason for this is that Google's layoffs were slower than those of other major companies, so it is now enjoying the post-layoff profit increase, with management expenses down 20% this quarter.

• Although the gross margin also increased by 2%, it was mainly due to the decrease in the proportion of low-margin businesses, and the traffic acquisition cost (TAC) paid to partners in Q1 still exceeded expectations. The competition in the advertising industry is also becoming more intense;

• As expected, the capital expenditure increased. Similar to all AI companies, Google's capital expenditure in Q1 reached a new high of $12 billion. The management also expressed without reservation the plan to significantly increase the full-year Capex, and AI investment has become the focus of the new round of competitive cycle.