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Why Alphabet Stock Was Soaring Today

By Jeremy Bowman - Apr 29, 2020 at 11:20AM

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A bettter-than-expected earnings report lifted the stock.

What happened

Shares of Alphabet (GOOG 2.36%) (GOOGL 2.39%) were climbing today as the Google parent delivered better-than-expected revenue growth in the first quarter, even as its advertising business was buffeted by the COVID-19 pandemic toward the end of the period. The revenue beat and management's commentary that second-quarter results wouldn't be as bad as feared helped lift the stock.

As of 10:25 a.m. EDT, Alphabet stock was up 9.7%.

A book on a table of books that's showing different Google designs

Image source: Getty Images.

So what

Revenue at Alphabet rose 13% in the quarter to $41.2 billion, down from 17% growth in the year-ago quarter, but that still beat expectations of $40.8 billion. Adjusted for currency exchange, revenue in the period increased 15%. CFO Ruth Porat explained, "Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues."

Revenue from Google's advertising segment, its primary business, rose just 10.4% in the quarter to $33.8 billion, but the company continued to see strong growth from Google Cloud, where revenue jumped 52.2% to $2.8 billion, and the Google "other" segment, which is made up of hardware, the Google Play store, and non-advertising revenue from YouTube. In that segment, revenue rose 22.5% to $4.4 billion.

Operating income from the overall Google business rose slightly, but total adjusted operating income fell from $8.3 billion to $8 billion as its loss from the experimental businesses it calls "other bets" expanded. Adjusted earnings per share declined from $11.90 to $9.87 as it lapped some investment gains from a year ago, and that result missed expectations of $10.32.

Now what

Management didn't issue specific guidance, but on the earnings call, Porat said that the second quarter "would be a difficult one for our advertising business." She also said the tech giant would scale back on hiring and some marketing spending, and that capital expenditures would decline, mostly due to a slowdown in construction for office facilities and the company's desired pace of expansion.

Though Alphabet's financial results will take a hit this year as its ad business is closely tied to the health of the global economy, usage for many of its products, like YouTube and Google Play, is up during the crisis, and its monopoly-like power in search and other areas remains unchallenged. There's little doubt that the business will bounce back when the economy recovers.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

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