Alphabet handily topped first quarter estimates as Google's advertising business held up well and Google Cloud revenue checked in at $12.26 billion.

The company reported first quarter net income of $34.54 billion, or $2.81 a share, on revenue of $90.23 billion, up 12% from a year ago. Wall Street was looking for first quarter earnings of $2.01 a share on revenue of $89.17 billion.

Sentiment headed into Alphabet's results was weak due to worries about advertising amid economic uncertainty. Here's the breakdown by unit.

  • Google search and other revenue was $50.7 billion.
  • YouTube ad revenue in the first quarter was $8.93 billion, up from $8.09 billion a year ago.
  • Google Cloud revenue was $12.26 billion, up 28% from $9.58 billion a year ago, with operating income of $2.18 billion.

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CEO Sundar Pichai said the quarter was solid with promise in Google's AI efforts. He said search AI overviews had 1.5 billion users per month. YouTube and Google One led subscription revenue as the company topped 270 million paid subscriptions in the first quarter.

Google Cloud Next coverage:

Other items in Alphabet's report:

  • Capital expenditures in the first quarter were $17.2 billion, up 43% from a year ago.
  • Alphabet had trailing 12-month cash flow of $74.88 billion.
  • The company ended the quarter with 185,719 employees, up from 180,895 from a year ago.

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Items from the conference call:

  • Pichai said Google Cloud is offering the widest range of TPUs and GPUs and will "continue to invest in next generation capabilities."
  • All 15 of products with more than half a billion users are using Gemini models. 
  • Circle to search usage was up 40% in the first quarter compared to a year ago. Monthly Lens visual searches are up by 5 billion since Octover. 
  • Philipp Schindler, chief business officer of Google, said YouTube's revenue growth was driven by direct response over brand ads. 
  • Schindler said AI overview monetization is similar to traditional search results. 
  • Anat Ashkenazi, CFO, said search gains was "once again broad based across verticals led by financial services, due primarily to strengthen insurance followed by retail."
  • Ashkenazi said growth in Google Cloud was across core and AI services. Workspace revenue was driven by increasing average revenue per seat. Google Cloud operating income was driven by improvements in productivity, efficiency and utilization. 

Ashkenazi said that Google Cloud capacity remains constrained. 
"In cloud, we're in a tight demand supply environment, and given that revenues are tied to the timing of deployment of new capacity, we could see variability in cloud revenue growth rates depending on capacity deployment. Each quarter we expect relatively higher capacity deployment towards the end of 2025."
 

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Constellation Research analyst Holger Mueller said:

"Alphabet had a good quarter showing strong ad revenue. Overall Alphabet grew and became more profitable.  Google Cloud did well in the sense of growing 28% YoY now clearly being in the double digit billions of dollars in revenue. Google announced substantial AI innovations at Google Cloud Next, which reaffirms its leadership in AI, with a lead of 3-4 years over the cloud competitors. Now it only has to make sure that CxOs notice and bring in Google Cloud workloads. On the regulatory side, it remains a cliff hanger with Alphabet and its Department of Justice trial. But in the case of splitting up the company, it may bring more focus to the separate entities, so there's nothing investor should worry about – at least from what we know today."

 

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Data to Decisions, Matrix Commerce, Next-Generation Customer Experience, Tech Optimization

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