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.

The hottest crypto trade has turned cold. Some investors are saying “told you so,” while others are doubling down.

It was the move to make for much of the year: Sell shares or borrow money, then plough the cash into bitcoin, ether and other cryptocurrencies. Investors bid up shares of these “crypto-treasury” companies, seeing them as a way to turbocharge wagers on the volatile crypto market.

Michael Saylor pioneered the move in 2020 when he transformed a tiny software company, then called MicroStrategy , into a bitcoin whale now known as Strategy. But with bitcoin and ether prices now tumbling, so are shares in Strategy and its copycats. Strategy was worth around $128 billion at its peak in July; it is now worth about $70 billion.

The selloff is hitting big-name investors, including Peter Thiel, the famed venture capitalist who has backed multiple crypto-treasury companies, as well as individuals who followed evangelists into these stocks.

Saylor, for his part, has remained characteristically bullish, taking to social media to declare that bitcoin is on sale. Sceptics have been anticipating the pullback, given that crypto treasuries often trade at a premium to the underlying value of the tokens they hold.

“The whole concept makes no sense to me. You are just paying $2 for a one-dollar bill,” said Brent Donnelly, president of Spectra Markets. “Eventually those premiums will compress.”

When they first appeared, crypto-treasury companies also gave institutional investors who previously couldn’t easily access crypto a way to invest. Crypto exchange-traded funds that became available over the past two years now offer the same solution.

BitMine Immersion Technologies , a big ether-treasury company backed by Thiel and run by veteran Wall Street strategist Tom Lee , is down more than 30% over the past month.

ETHZilla , which transformed itself from a biotech company to an ether treasury and counts Thiel as an investor, is down 23% in a month.

Crypto prices rallied for much of the year, driven by the crypto-friendly Trump administration. The frenzy around crypto treasuries further boosted token prices. But the bullish run abruptly ended on Oct. 10, when President Trump’s surprise tariff announcement against China triggered a selloff.

A record-long government shutdown and uncertainty surrounding Federal Reserve monetary policy also have weighed on prices.

Bitcoin prices have fallen 15% in the past month. Strategy is off 26% over that same period, while Matthew Tuttle’s related ETF—MSTU—which aims for a return that is twice that of Strategy, has fallen 50%.

“Digital asset treasury companies are basically leveraged crypto assets, so when crypto falls, they will fall more,” Tuttle said. “Bitcoin has shown that it’s not going anywhere and that you get rewarded for buying the dips.”

At least one big-name investor is adjusting his portfolio after the tumble of these shares. Jim Chanos , who closed his hedge funds in 2023 but still trades his own money and advises clients, had been shorting Strategy and buying bitcoin, arguing that it made little sense for investors to pay up for Saylor’s company when they can buy bitcoin on their own. On Friday, he told clients it was time to unwind that trade.

Crypto-treasury stocks remain overpriced, he said in an interview on Sunday, partly because their shares retain a higher value than the crypto these companies hold, but the levels are no longer exorbitant. “The thesis has largely played out,” he wrote to clients.

Many of the companies that raised cash to buy cryptocurrencies are unlikely to face short-term crises as long as their crypto holdings retain value. Some have raised so much money that they are still sitting on a lot of cash they can use to buy crypto at lower prices or even acquire rivals.

But companies facing losses will find it challenging to sell new shares to buy more cryptocurrencies, analysts say, potentially putting pressure on crypto prices while raising questions about the business models of these companies.

“A lot of them are stuck,” said Matt Cole, the chief executive officer of Strive, a bitcoin-treasury company. Strive raised money earlier this year to buy bitcoin at an average price more than 10% above its current level.

Strive’s shares have tumbled 28% in the past month. He said Strive is well-positioned to “ride out the volatility” because it recently raised money with preferred shares instead of debt.

Cole Grinde, a 29-year-old investor in Seattle, purchased about $100,000 worth of BitMine at about $45 a share when it started stockpiling ether earlier this year. He has lost about $10,000 on the investment so far.

Nonetheless, Grinde, a beverage-industry salesman, says he’s increasing his stake. He sells BitMine options to help offset losses. He attributes his conviction in the company to the growing popularity of the Ethereum blockchain—the network that issues the ether token—and Lee’s influence.

“I think his network and his pizzazz have helped the stock skyrocket since he took over,” he said of Lee, who spent 15 years at JPMorgan Chase, is a managing partner at Fundstrat Global Advisors and a frequent business-television commentator.

Google Earnings Smash Sales Records

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

Selloff in bitcoin and other digital tokens hits crypto-treasury companies.