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Alphabet (Google) share price: Q1 results unpacked

We examine the key figures from Alphabet’s latest quarterly earnings report.

Alphabet share price Source: Bloomberg

Growth slows, but opportunities remain

In the lead up to the release of Alphabet’s (GOOG) Q1 results, investors traded the stock pessimistically, bidding GOOG down 3.01% – to US$1,232 per share, during Tuesday’s session.

And when Alphabet reported its first-half results after the market close, the company revealed both slowing revenue and income, as the search giant grapples with the implications of the coronavirus (Covid-19) pandemic.

Suggesting that Tuesday’s pessimism was overdone, or potentially that Alphabet and its key subsidiary Google had been less impacted by Covid-19 than investors were expecting – traders bid the stock significantly higher in after-hours trade.

At the time of writing, Alphabet’s share price had added US$98.41, or 7.98%, to last trade at US$1,331 per share.

Results unpacked

On the top-line, the tech behemoth reported Q1 FY20 revenues of US$41,159 million – representing a year-over-year increase of 13%.

On a constant currency basis the figures look a shade better, with Sundar Pichai, Chief Executive Officer of Alphabet and Google, saying:

‘Our business, led by Search, YouTube, and Cloud, drove Alphabet revenues to $41.2 billion, up 13% versus last year, or 15% on a constant currency basis.’

For reference, in Q1 FY19, Alphabet reported revenues of US$36,339 million, implying a year-over-year growth rate of 17%.

On the bottom-line, Alphabet reported Q1 operating income of US$7,977 million against an operating margin of 19%. This represents a 1% operating margin improvement from the same time last year.

Mind you, though Alphabet’s overall growth profile may be slowing, the company’s cloud business – Google Cloud – continues to exhibit extra-normal growth levels. In Q1 Google Cloud recorded revenues of US$2,777 million – representing a highly impressive year-over-year growth rate of 52%.

Google share price: a challenging outlook

Importantly, while Alphabet’s revenue growth rate held up reasonably well during Q1, investors will likely turn their focus to just how well Google’s ad revenue can hold up in the coming months in the face of the coronavirus pandemic.

Indeed, as Alphabet’s Chief Financial Officer, Ruth Porat worryingly pointed out:

‘Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues. We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.’

Google’s ad revenue continues to be an outsized contributor to the company’s top-line figures, hitting US$33,763 million during the quarter.

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