There was a lot of uncertainty going into Alphabet's (GOOGL 0.17%) (GOOG 0.20%) first-quarter earnings report. Some investors likely feared that an uncertain macroeconomic environment could lead to surprise downside in the company's reported revenue for the period. But Alphabet's revenue actually came in better than expected, growing 3% year over year and 6% when adjusted for foreign exchange. Even more, the company's profits were both robust and better than analysts were expecting.
With the tech company's business doing well despite a tough macroeconomic environment, Alphabet stock arguably looks like a buy today. This is especially true when this performance is considered alongside the company's impressive share repurchase program and the stock's conservative valuation.
To break down why shares seem attractive, let's take a look at Alphabet's resilient business, its profits, and its share repurchase program.
A resilient business
One of the best cases for the resilience of Alphabet's business is its top-line growth during a tough macroeconomic environment, even in the face of a challenging year-ago comparison. Alphabet's revenue grew 3% during the quarter -- and that's on top of 23% growth in the year-ago quarter. Even more, its 6% constant-currency growth is on top of 26% constant-currency growth in the year-ago period. A tough macroeconomic environment, global supply chain challenges that slowed many businesses down, and geopolitical tensions have done little to slow this company down -- at least when results are viewed in the context of growth over the last two years. Sure, there's some bumpiness in the near term but when you zoom out over the last two years, Alphabet's business has done spectacularly well.
Getting more granular, slight growth in the company's core search business during Q1 and 28% growth in Alphabet's cloud business both show how critical the company's services remain to consumers and businesses. Further, such strong growth in Google Cloud highlights a part of the business that can transform into a significant catalyst as it becomes a larger portion of revenue.
Strong profits
Though Alphabet's net income fell from $16.4 billion in the year-ago period to $15.1 billion in the first quarter of 2023, this is still a massive profit for a company highly reliant on advertising revenue during a period in which many marketers are limiting their ad spend. Even more, investors can now take comfort in the fact that the company's cloud business just reported its first quarterly operating profit. Google Cloud's operating profit was $191 million, up from a $706 million operating loss in the year-ago quarter. Now that this segment has crossed into profitability, it will likely grow quickly as a profit contributor for the company, thanks to the segment's rapid top-line trajectory.
A huge repurchase program
Another catalyst for the stock is the cadence of its share repurchases. Alphabet management seems to think its shares are trading at an attractive price, as the company has been aggressively buying back shares. Alphabet bought back nearly $15 billion worth of its own stock, or about 1% of its shares outstanding, in Q1 alone. And looking ahead, this quarterly cadence will likely persist (as long as management continues to think its stock is undervalued); Alphabet announced on Tuesday that it was authorizing an additional $70 billion to repurchase its shares. Management says it will repurchase shares "in a manner deemed in the best interest of the company and its stockholders, taking into account the economic cost and prevailing market conditions, including the relative trading prices and volumes of the Class A and Class C shares."
Given how resilient Alphabet's business is proving to be, and considering how profitable the company is, it likely is in shareholders' best interest for Alphabet to be spending its excess cash on share repurchases right now. Indeed, investors may want to consider following suit. There's a lot to like about Alphabet stock -- especially with shares trading at a price-to-earnings ratio in the low twenties.
