Google surges, Baidu lags for now

Google ad sales surged in the first quarter, helping parent Alphabet’s shares to rise +4.5%; Chinese rival Baidu’s US shares lag for now ahead of results on May 18 

Google surges, Baidu lags for now
The sun is still shining on Google's ad sales, even though off-line business is starting to revive as vaccinations are rolled out. File picture: Reuters.

(ATF) Google ad sales rose +32% in the first quarter, enabling parent Alphabet to beat revenue estimates and a $50 billion share buyback announcement helped its shares to rise +4.5% after the US market closed on Tuesday April 27.

Nasdaq-listed shares in Google's Chinese rival Baidu were unmoved but could see a boost ahead of its own first quarter results on May 18.

The results are a sign that Google services may hold on to gains in use brought on by lockdowns and other pandemic restrictions that forced people to shop and communicate online more over the last year.

Alphabet shares were up about +4.5% at $2,398.61 in after hours US trading.

The results “reflect elevated consumer activity online and broad-based growth in advertiser revenue,” Alphabet chief financial officer Ruth Porat said in a statement.

The rise in Google ad sales by +32% in the first quarter compared with a year ago was above expectations of analysts tracked by Refinitiv. Cloud sales increased +45.7%, in line with estimates.

About 17% of people in the United States, Alphabet’s top region by revenue, were fully vaccinated against Covid-19 by the end of the first quarter and the percentage continues to rise fast.

In-person dining resumed in big cities in March, and security screenings at US airports were the busiest in a year.

This return to off-line activity did not affect Alphabet’s overall sales, which rose by +34% to $55.3 billion, above analysts’ estimates of $51.7 billion.

Q1 profit up 162%

Alphabet’s quarterly profit rose +162% to $17.9 billion, or $26.29 per share, beating estimates of $15.88 per share. Earnings benefited from unrealised gains from venture capital investments and slower depreciation of some data equipment.

The company’s operating margin rose to 30% for the first time since it incorporated as Alphabet in 2015, even as its costs began to pick up again. Alphabet in 2020 suffered its slowest sales growth in 11 years but posted record profit and upped its cash hoard by $17 billion after slowing hiring and construction.

Alphabet did not break out which industries powered Google’s growth in ad and cloud sales in the first quarter.

Increased ad buying by travel and entertainment companies would be a positive sign as hotel booking services and movie studios are among Google’s biggest spenders.

Google’s ad business, the global market leader as measured in sales, accounted for 81% of the quarterly revenue compared with 82% a year ago.

The operating loss for Google Cloud, a distant rival to the cloud businesses of Amazon and Microsoft, narrowed 44% to $974 million in the first quarter.

Google’s newer consumer subscription businesses, such as an ad-free version of YouTube, are likely to draw attention, while still remaining a small proportion sales.

Privacy and antitrust lawsuits against Google that could result in changes to its ad operations have remained a concern for investors. But no meaningful impact seems imminent, with one key trial not expected until 2023.

Another dispute emerged on Monday when streaming TV technology company Roku accused Google of anti-competitive behaviour to benefit its YouTube and hardware businesses.

Discussions about changing US and European laws to impose new oversight on Google, Facebook and other companies regarding privacy and artificial intelligence have slowed as legislators have been distracted by the pandemic.

Shares of Facebook, which had been up 62% during the last year entering Tuesday, rose 1.7% after hours. Shares of Amazon, another big competitor in advertising, rose 0.2% after Alphabet’s results and were up 44% over the last year - below Alphabet’s 80% rise.

Baidu’s Nasdaq-listed shares were unchanged in regular US trading hours and only saw a marginal rise in an initial reaction to the strong Google results.

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