Will Alphabet Stock Keep Rising After Crushing Q1 Earnings Expectations?
Alphabet
GOOGL shares had spiked as much as +4% in today's trading session, with the tech conglomerate blowing away its Q1 earnings expectations after-market hours on Thursday.
The strong diversification in its Q1 results couldn't have come at a better time, as regulatory scrutiny surrounding the company's dominance in the online search and advertising market has weighed on Alphabet's stock. To that point, GOOGL shares are still down 14% year to date despite sitting on +37% gains in the last three years to roughly match the Nasdaq and top the benchmark S&P 500's +32%.
Alphabet's Strong Q1 Results
Seeing what CEO Sundar Pichai stated was healthy growth across its business segments, including in new AI-powered features, Alphabet's Q1 sales increased 13% to $76.48 billion versus $67.59 billion in the comparative quarter. This also topped Q1 sales estimates of $75.52 billion by 1%.
Google Search, YouTube advertising, and Google Cloud each had double-digit revenue growth during Q1. This drove Alphabet's Q1 EPS to $2.81, which blasted expectations of $2.02 by 39% and soared 48% from $1.89 per share a year ago.
Furthermore, Alphabet has now surpassed the Zacks EPS Consensus for nine consecutive quarters, posting an average earnings surprise of 14.64% in its last four quarterly reports.
Alphabet's Cautious Outlook
While Alphabet did not provide specific projections in regard to its full-year guidance, the tech giant does expect its Google services advertising revenue to be impacted by lapping the strength experienced from the financial services industry throughout 2024.
Alphabet also stated its cloud services are in a tight supply-demand environment and could see variability in revenue growth rates depending on capacity deployment, but does expect relatively higher capacity deployment towards the end of the year.
Based on Zacks estimates, Alphabet's total sales are currently projected to rise 9% in fiscal 2025 and are forecasted to increase another 10% in FY26 to $355.95 billion. Annual earnings are expected to be up 8% this year and are projected to spike another 14% in FY26 to $9.90 per share.
Alphabet's Dividend Increase
During Q1, Alphabet highlighted a return to shareholders in the form of $15.1 billion in share repurchases and $2.4 billion in dividend payments. Even better, Alphabet announced a 5% increase to its quarterly dividend and approved an additional $70 billion share repurchase authorization.
It's noteworthy that this would mark Alphabet's first-ever dividend increase since instating a payout to shareholders in June of 2024. The increase would bring Alphabet's annual dividend to $0.84 per share from $0.80.
Conclusion & Final Thoughts
It wouldn't be surprising if Alphabet stock continued to move higher following its strong Q1 results. However, more meaningful upside will largely depend on the trend of earnings estimate revisions in the coming weeks as analysts digest Alphabet's cautious guidance. For now, Alphabet stock continues to land a Zacks Rank #3 (Hold).
There is no doubt that Alphabet is offering long-term value to shareholders with GOOGL having the cheapest forward P/E valuation among the Mag 7, but better buying opportunities could still be ahead.
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