Photo Credit: Photo Mix from Pixabay

Alphabet aka Google (Nasdaq: GOOG) recently reported its first-quarter results that topped the market’s expectations. As the company deals with a weak online ad market, it has been accelerating its cost management focus to ensure it turns into a leaner organization.

Alphabet’s Financials

Alphabet’s first-quarter net revenue grew 3% to $69.79 billion, ahead of the market’s forecast of $68.9 billion. Net income was $1.17 per share, ahead of the market’s forecast of $1.07.

Revenue from YouTube advertising was $6.69 billion compared with the market’s estimate of $6.6 billion. Google Cloud revenue was $7.45 billion, falling short of the market’s estimates of $7.49 billion. But the segment finally turned profitable, and ended the quarter with an operating income of $191 million, compared with a loss of $706 million a year ago. Traffic acquisition costs for the quarter were $11.72 billion, lower than the market’s estimate of $11.78 billion.

By segment, Google’s Search and Other revenues grew marginally from $39.6 billion a year ago to $40.36 billion. Revenue from Other Bets, which includes Google’s life sciences unit Verily and self-driving car company Waymo, was $288 million, falling significantly from $440 million a year ago.

The current economic conditions have reduced overall marketing spend, thus impacting advertising revenues. Google believes that the future remains uncertain for the segment. While overall ad revenues were ahead of the analyst expectations, they fell from $54.7 billion a year ago to $54.55 billion. The revenue is impacting its margins as well. To address the issue, Google has made some of the most extreme cuts in its history and has laid off 12,000 employees, or 6% of its global workforce. The company is also evaluating other expenses including real estate, employee services, and equipment refresh to manage costs. The company also announced a massive $70 billion stock buy-back program.

Google did not provide an outlook for the current quarter. The market is looking for an EPS of $1.15 on revenues of $70.06 billion for the second quarter and EPS of $5.19 on revenues of $303.41 billion for the current fiscal year.

Google’s AI Plans

The market is watching Google’s AI plans closely. After Microsoft announced its AI-powered Bing search, investors were looking up to Google to do something big as well. Google announced its own version of AI-powered search and opened limited access to Bard chatbot. Similar to OpenAI’s ChatGPT and Microsoft’s Bing chatbot, Bard allows users to enter their search query in a blank text box. Users can get answers to general queries, seek advice, and get directed to traditional Google search when they want detailed answers on a subject. But the experiment does not appear to have gone down well. Even after a month of opening access, Google is still calling it an experiment. According to Google’s own employees, Bard is fairly lackluster when compared with Bing.

But that has not stopped Google from continuing to make inroads into the AI space. It recently announced a suite of upcoming generative AI features that will be embedded in its Workspace apps, including Google Docs, Gmail, Sheets, and Slides. These new features will allow users to get access to AI-generated summaries, brainstorm text with AI in Google Docs, see full emails generated automatically in Gmail based on their brief bullet points and get AI imagery, audio, and video to illustrate presentations in Slides. Google is planning to add AI tools to all its user products in a matter of months to address Microsoft’s emerging dominance in the segment.

To continue to drive focus on AI, Google has also made some structural changes. DeepMind, the AI company that it had acquired in 2014, is now merging with its Brain team to form Google DeepMind. Google DeepMind will focus on delivering AI research and products faster and more responsibly to Google’s vast user-base.

Its stock is trading at $107.77 with a market capitalization of $1.37 trillion. It hit a 52-week high of $123.26 in August last year and a 52-week low of $83.45 in October last year.

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