Google Earnings Smash Sales Records

Google’s parent company shattered sales records for the first quarter, fueled by a surge in digital ad spending that has strengthened the tech heavyweight even as regulators try to curtail its power.

The robust earnings reflect advertiser anticipation that the reopening of the economy will coincide with a gusher of business activity, as well as Google’s prominent place at the center of digital commerce.

The pandemic provided a jolt to Alphabet Inc.’s advertising business as more people shifted their lives online during a stay-at-home year, turning to Google search to find takeout meals and grocery-delivery options while clicking through videos on the company’s YouTube platform. Brands responded by shifting ad spending from print, television and in-store promotions to find customers across the Google universe.

Alphabet reported first-quarter sales of $55.31 billion, an increase of 34% from a year earlier when advertising sales plunged as the coronavirus crippled the global economy. Profit more than doubled, with per-share earnings far exceeding analysts’ expectations.

The company posted $31.88 billion in sales from its signature products, including search, Gmail and maps, a 30% increase that reflected the way brands are spending to reach people online. YouTube pulled in $6 billion, increasing 49% from a year earlier.

Total profit reached almost $18 billion, soaring 162% from the previous year.

Google said it would repurchase an additional $50 billion in shares, fulfilling the wishes of investors who had been monitoring the company’s swelling cash reserves.

Alphabet shares gained more than 4% in after-hours trading.

“Google has the wind at its back now,” said Sean Stannard-Stockton, chief investment officer at Ensemble Capital, a Burlingame, Calif., firm with $1.5 billion in assets under management that counts Alphabet among its largest holdings. “It didn’t just glide through Covid. It’s really well positioned and is even stronger,” he said.

As the world’s digital ad leader, Google has been positioned to benefit from a broad wave of online ad growth sweeping across the economy. Smaller rival Snap Inc. last week reported a 66% increase in revenue on strong user growth and increased advertising, while Verizon Communications Inc. posted a 26% increase in ad sales.

The digital-spending surge has helped Google continue to deliver sales growth even as its share of the American search-advertising market slips. The company’s market share of search last year fell to 57% from 61% a year earlier, while rival Amazon.com Inc. increased its share to 19% from 13% over the same period, according to eMarketer, a research firm.

Regulators remain the largest obstacle to Google’s business success. Last year, the Justice Department and a separate coalition of states brought antitrust lawsuits alleging the company has struck secretive agreements to favor its search-engine and advertising businesses and thwart competitors.

The cases could force Google to spin off pieces of its business or cede its perch in search to rivals.

In addition, antitrust lawsuits have been filed by Epic Games Inc. over Google’s Play app store and the publisher Daily Mail over its digital advertising auctions.

Google has said it operates in a competitive market and people use its search service because they choose to, not because they are forced to. It says its Play store operates under policies that are fair to developers and its ad-tech business competes in a crowded marketplace with several alternatives for publishers.

The company continues to spend heavily to ensure Google remains the default search engine on iPhones and other devices. The toll fees, known as traffic-acquisition costs, rose 30% to $9.71 billion during the first quarter from a year earlier.

Google also has been spending to diversify beyond its core ad business with a cloud-computing service that challenges Amazon and Microsoft Corp. The company has been trumpeting a bevy of billion-dollar deals in recent months that lifted sales at the division 46% to $4.05 billion in the quarter.

The company has wooed new clients by packaging its offerings with benefits across its dominant advertising and search businesses. On Monday, it announced an eight-year, $1 billion-plus contract with Spanish-language broadcaster Univision Communications Inc. that it won in part by including YouTube and search elements.

The practice, known as bundling, has drawn criticism from lawmakers who say it undermines competition, but Thomas Kurian, Google’s Cloud chief executive, has said the company is simply responding to consumer needs.

On Monday, Apple Inc. released a software update that will give users the option to prevent apps from tracking their use on iPhones and other devices. The change is expected to pressure Google to implement similar privacy measures on its Android operating system, the world’s largest. Such a maneuver would upend Facebook Inc.’s business, which uses the data collected across mobile devices to target ads to users.

Because of its digital-advertising dominance, Google will have to walk a fine line in introducing privacy restrictions of its own on its mobile operating system. It has drawn criticism from privacy advocates and ad-tech competitors alike over a plan to stop selling ads on individuals’ browsing across multiple websites. Privacy advocates say its plan to group individuals in advertising cohorts doesn’t go far enough, while rivals consider it anticompetitive.

The speed bumps from privacy aren’t expected to slow Alphabet’s moneymaking machine. The company’s search engine has a lock on 92% of world-wide traffic, its Maps offerings have an 89% share of navigation and YouTube accounts for 73% of the online video world.

Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.

This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.

Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.

Here are three strategies useful for functional families.

Intrafamily loans

It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.

But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.

If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.

To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.

In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.

If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.

Asset gifts

Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.

The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.

Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.

However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.

These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.

But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.

Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.

The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.

Sellner doesn’t worry about his children using the funds for another purpose.

“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.

Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.

Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.

Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”

Disclaimers

A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.

Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.

Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.

Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.

Google Earnings Smash Sales Records

YouTube helps power search giant to profits that far exceeded analyst expectations.

Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.

Intrafamily loans

Asset gifts

Disclaimers