The recent announcement of a dividend by Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) during its first-quarter earnings has brought renewed attention to a warning from Peter Thiel, co-founder of PayPal Holdings Inc, about the future of the tech giant.
What Happened: Thiel, a prominent figure in the tech industry, had expressed concerns about the future of Google, now a subsidiary of Alphabet, back in 2012. He suggested that the company's lack of technological innovation could lead to significant issues.
Thiel, speaking at an Aspen, Colorado event sponsored by Fortune magazine, said, "...Google is no longer a technology company, it's basically a search engine. The search technology was developed a decade ago. It's a bet that there will be no one else who will come up with a better search technology."
"So, you invest in Google, because you're betting against technological innovation in search. And it's like a bank that generates enormous cash flows every year, but you can't issue a dividend, because the day you take that $30 billion and send it back to people you're admitting that you're no longer a technology company," Thiel added.
Notably, Thiel conveyed to former Google CEO Eric Schmidt that the company lacked direction in its investment decisions.
Why It Matters: Despite Thiel's concerns, Alphabet has been showing strong financial performance. During the first quarter of 2024, the company reported a 15% year-over-year increase in revenue, totaling $80.539 billion, and a quarterly earnings of $1.89 per share, beating analyst estimates. This marked the fifth consecutive quarter in which Alphabet surpassed analyst expectations on both the top and bottom lines.
Alphabet's CEO, Sundar Pichai, has projected a combined revenue of $100 billion from the company's YouTube and Cloud businesses by 2024, indicating a 25% growth rate for each of the next three quarters. Pichai's forecast suggests that Alphabet is entering a new growth phase, as noted by Gene Munster of Deepwater Asset Management.
Furthermore, Pichai has expressed confidence in Alphabet's ability to manage the costs associated with the new search experience, including generative answers.
This confidence is supported by the company's strong financial performance and its commitment to AI, as evidenced by a $12 billion capital expenditure announced during the first-quarter earnings call.
Price Action: Alphabet's Class A stock rose 11.56% to $174.04, while Class C stock rose 11.43% in after-hours trading to $176.23, according to data from Benzinga Pro at the time of writing
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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.