Google’s ad resurgence just gets started

Google’s parent Alphabet Inc is turning out to be one of the biggest winners of the economic reopening trade. The company posted first-quarter sales results that were significantly higher than expected. Underlying the impressive performance were clear signs that the strength in the internet giant’s search advertising business may be sustainable for some time to come. Its resurgence may be just getting started.
Alphabet reported first-quarter revenue of $45.6 billion excluding traffic acquisition costs, up 35% from a year earlier and exceeding the $42.6 billion Bloomberg consensus.
In its earnings release, Chief Financial Officer Ruth Porat cited broad-based growth in ad revenue, along with higher levels of online activity from consumers. Add to that the announcement of a $50 billion buyback plan and you have a recipe for a post-earnings stock pop: Alphabet shares climbed 4% in post-market trading.
Alphabet’s outperformance is understandable given the double dose of government stimulus and wider availability of vaccines, but the nature of the company’s business model increases the chance that the strong growth trend will be durable. It comes down to the company’s virtual monopoly of the search-engine advertising business. Last year, that dominant position was detrimental as it left Alphabet exposed to all areas of the economy amid the pandemic as it decimated the businesses and marketing budgets of traditional industries including travel, brick-and-mortar
retail stores, restaurants and outdoor entertainment services. Now, those areas are set to rebound as daily life returns to normal — and Google’s ad revenue should benefit in the process. The shift has already begun.

—Bloomberg