Google's advertising business remains strong, with net profit increasing by 46%. It will continue to expand capital expenditures, and the stock price rose by 6% after hours | Earnings Report Insights

Alphabet, Google's parent company, reported its first-quarter results after the market closed on Thursday, showing that its revenue and profit exceeded analysts' expectations, thanks to the continued strong performance of its search advertising business, which partially offset the slowdown in growth in its cloud computing division. Additionally, with a significant increase in capital expenditures in the first quarter, the company indicated it would continue to substantially raise capital expenditures, causing its stock price to rise by as much as 6% in after-hours trading.

Here are the key points from Alphabet's financial report:

Key Financial Data:

Revenue: Alphabet's first-quarter revenue was $90.23 billion, higher than analysts' expectations of $89.1 billion. The first-quarter revenue, excluding partner payouts, was $76.5 billion, exceeding the analysts' average expectation of $75.4 billion.

Net Profit: Alphabet's first-quarter net profit was $34.5 billion, a year-on-year increase of 46%.

Earnings Per Share: Alphabet's first-quarter earnings per share were $2.81, far exceeding analysts' expectations of $2.01.

Capital Expenditures: Alphabet's first-quarter capital expenditures were $17.2 billion, higher than $12 billion in the same period last year and slightly above the market estimate of $17.1 billion.

Segment Data:

Google Advertising Revenue: In the first quarter, Google’s advertising revenue was $66.89 billion, exceeding analysts' expectations of $66.39 billion.

Google Cloud Business: Google Cloud's revenue grew by 28% year-on-year in the first quarter, reaching $12.26 billion, slightly below analysts' expectations of $12.27 billion.

YouTube Advertising Revenue: Google’s YouTube advertising revenue in the first quarter was $8.93 billion, compared to analysts' expectations of $8.94 billion.

On Thursday, Alphabet also announced a $70 billion stock buyback plan, with (quarterly) cash dividends increasing by 5% to $0.21. Following the earnings report, Alphabet's Class A shares rose by as much as 6% in after-hours trading before retreating to around 4%.

Google CEO Sundar Pichai stated:

“The search business continues to grow strongly, benefiting from features like AI Overviews that enhance user engagement. Cloud computing is also growing rapidly, with strong demand for our solutions.”

Capital Expenditures Will Continue to Expand

According to the financial report, Alphabet's investments in data centers, chips, and other AI infrastructure continue to expand. Capital expenditures soared to $17.2 billion in the first quarter, up from $12 billion in the same period last year and slightly above the market estimate of $17.1 billion. The company expects total capital expenditures for 2025 to reach $75 billion for projects such as building data centers, a significant increase from $53 billion in 2024.Analysis suggests that U.S. President Trump's trade policies have raised concerns about an economic downturn, prompting companies to rethink their advertising expenditures. Google is the second large tech company to report earnings after Trump initiated a global trade war. So far this year, Alphabet's stock price has fallen by about 17%. Like most of its peers, the company is affected by worries that tariffs could disrupt supply chains and weaken consumer spending, leading to market concerns about a potential recession in the U.S. However, analysts indicate that the digital advertising market remained robust in the first quarter.

Revenue from Google's core advertising business grew by 8.5% this quarter, reaching $66.89 billion, accounting for about 75% of the company's total revenue. Although this growth rate is lower than the 10.6% in the previous quarter, it still exceeds analysts' expectations of 7.7%.

Revenue from Google's cloud computing division grew by 28% year-on-year, reaching $12.3 billion, down from 30% in the fourth quarter of last year. However, the operating profit growth for this division remained roughly flat compared to the previous quarter, slightly above 140%, indicating that this business is becoming an important source of profit for Google.

Rise of AI Competitors, Search Business No Longer Safe

To ensure reasonable returns on its increasing investments in the AI race, Alphabet must maintain the growth momentum of its search advertising and cloud computing businesses. Intense market competition has forced the company and its rivals to invest heavily in infrastructure, research and development, and talent.

In 2023, Alphabet launched its most ambitious generative AI—Bard, later renamed Gemini. Although the number of Gemini users has significantly increased, it still lags far behind OpenAI's ChatGPT and Meta AI.

Analysts believe that while Google benefits from spending by AI startups on its cloud services and business tools, it is also accelerating its response to the threats posed by popular AI chatbots, which are increasingly seen by consumers as alternatives to Google Search.

EMARKETER senior analyst Evelyn Mitchell-Wolf stated that Google's search business has not yet fallen behind new competitors like Perplexity and China's DeepSeek, but this situation is not impossible.

"As new competitors continuously optimize their services and attract more search traffic, achieving double-digit growth in Google's search business will no longer be a certainty."

Google's initial response to this threat has been the introduction of "AI Overview" and "AI Mode" features in its search, which generate summary responses through generative AI and prominently display them before Google webpage links. The reception of such features has been mixed. At the same time, Google's AI adjustments to search have severely impacted traffic to independent websites on the open web.

Antitrust Lawsuits Ongoing

As this earnings call takes place, Alphabet is facing increasingly stringent scrutiny from federal regulators. The U.S. Department of Justice and several states filed an antitrust lawsuit against Google in 2020. Previously, a federal judge ruled that Google maintained its monopoly by paying substantial fees to make its search engine the default option on iPhone, Android devices, and web browsersThe judge wrote in the ruling that the Department of Justice and the states that filed the lawsuit successfully proved that Google "intentionally engaged in a series of anti-competitive practices to acquire and maintain its monopoly in the publisher ad server and ad exchange market for open web display advertising."

"For over a decade, Google has bound its publisher ad server and ad exchange platform together through contractual policies and technical integration, allowing the company to establish and protect its monopoly in both markets."

Currently, Google and the Department of Justice are in court regarding the "remedies" for the search engine ruling. Both sides will submit opinions, and the judge will decide what corrective measures should be taken in the market. Google is striving to avoid being forced to divest certain products, such as the Chrome browser