Alphabet Inc (NASDAQ:GOOG) has reported first-quarter revenue below expectations as advertising sales for the owner of Google and YouTube were pressured by supply-chain and inflation concerns and the war in Ukraine.
Alphabet said first-quarter sales were $68.01 billion, 23% higher than last year but below the average estimate of $68.1 billion, the company's first miss since the fourth quarter of 2019 before the coronavirus pandemic, while its total costs also increased by 23%.
YouTube advertising sales of $6.9 billion missed Wall Street's target of $7.5 billion. Cloud sales grew at a slower pace than a quarter ago, and Google's "other" revenue, which includes app, hardware and subscription sales, were $6.8 billion, below estimates of $7.3 billion.
Quarterly profit was $16.44 billion, or $24.62 per share, missing expectations of $25.76 per share. Alphabet generated $15.3bn of free cash flow and net cash was $119.2bn.
Alphabet shares were down 6.5% in New York after-hours trading on Tuesday.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown commented: “Prior to the latest results, Alphabet had lost $237bn of market value so far in April, as investors sprint away from growth stocks thanks to rising interest rates. That’s partly why the shares are being so severely punished for what is a good set of results."
"While it’s true the macro environment isn’t supportive, the Google parent doesn’t deserve to be part of the ongoing sell off. To be frank, net cash of $119bn swashing around the balance sheet means Alphabet can more than afford to be a spectator at the ongoing flight to value without worrying about long-term damage," she added.
Lund-Yates continued: "Looking at the numbers, operating profits are still primed to bounce in the future as Google Cloud gathers pace. A slowdown in the number of companies working from home full time could temper growth here, but as a long-term source of margin accretion it’s still an area to be very excited about.
"The group’s valuation is also worth real consideration, with a price to earnings ratio of around 20, Alphabet’s long-term and resilient revenue model isn’t fully reflected. As the tech sell off is unlikely to cease overnight, it’s worth considering the adage that price is what you pay, value is what you get.”
Contact the author at jon.hopkins@proactiveinvestors.com