Paying attention

Alphabet has 180,895 employees, 9,816 fewer than a year ago, and on Thursday it told them, and everyone else, that it had found a use for the savings.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024,3SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2023 Results25 Apr 2023} The company’s first-quarter results, published after the market closed, came with a $0.20 quarterly dividend per share, the first in its history, and permission to buy back up to an additional $70.0bn of its stock.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024,2SEC EDGARAlphabet Inc. Form 10-Q for the quarter ended 31 March 202425 Apr 2024} A firm that had not paid its owners a dividend before has decided, rather suddenly, to be generous.

The results explain the mood. Revenue in the quarter was $80.5bn, up 15% on a year earlier. Operating income rose 46% to $25.5bn, lifting the operating margin to 32% from 25%.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024} Net income was $23.7bn, against $15.1bn in the first quarter of 2023.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024,3SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2023 Results25 Apr 2023} Google Cloud, the division investors once watched for its losses, earned an operating profit of $900m, up from $191m.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024} A year ago Ruth Porat, the chief financial officer, spoke of “re-engineering our cost base”.^{3SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2023 Results25 Apr 2023} The re-engineering has evidently been delivered. Sundar Pichai, the chief executive, put the quarter more plainly: “strong performance from Search, YouTube and Cloud.”^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024}

The announcement is a surprise only in form. Alphabet has been returning cash for years through buybacks, and last April the board authorised the same $70.0bn, of which $20.4bn remained at the end of March.^{2SEC EDGARAlphabet Inc. Form 10-Q for the quarter ended 31 March 202425 Apr 2024,3SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2023 Results25 Apr 2023} It spent $16.1bn on repurchases in the latest quarter alone.^{2SEC EDGARAlphabet Inc. Form 10-Q for the quarter ended 31 March 202425 Apr 2024} It also has $108.1bn in cash and marketable securities.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024} The dividend, at $0.20 per share, is a modest signal wrapped around a large existing habit. Meta made the same move in February, with a $0.50 quarterly dividend and a $50bn increase in its buyback.^{4Meta Investor RelationsMeta Reports Fourth Quarter and Full Year 2023 Results; Initiates Quarterly Dividend1 Feb 2024} Silicon Valley’s great growth companies, it seems, have noticed that their shareholders also buy groceries.

We think this is the right call, with a caveat that matters. Companies exist to put capital to its best use, and if the best use is returning it, the owners will find something to do with it. Investors who wanted income from Alphabet used to have to sell shares to get it, a clumsy way of being paid by a firm that earns $24bn a quarter. A dividend is also a discipline. Cash paid out cannot be wasted on a moonshot.

The caveat is that the same filing shows the opposite appetite. Capital expenditure, mostly on the data centres and chips that artificial intelligence demands, was $12.0bn in the quarter, nearly double the $6.3bn of a year earlier.^{2SEC EDGARAlphabet Inc. Form 10-Q for the quarter ended 31 March 202425 Apr 2024} Alphabet is simultaneously spending twice as much on its future and offering to return more of its present. Both can be afforded for now: the cash pile has fallen only slightly, from $110.9bn at the end of December.^{1SEC EDGAR (Form 8-K, Exhibit 99.1)Alphabet Announces First Quarter 2024 Results25 Apr 2024} But the balance between the two is a judgement about whether AI will need much more money than Alphabet now plans to spend. Reasonable investors differ. If the answer is yes, a dividend that is hard to cut will look hasty.

Another objection concerns the courts. In the Justice Department’s antitrust case over search, the trial ended in November and the company expects a decision this year.^{2SEC EDGARAlphabet Inc. Form 10-Q for the quarter ended 31 March 202425 Apr 2024} A ruling against Alphabet could change how it earns its money, and a prudent firm might hold cash against it. That is a fair point, though it cuts both ways: a firm that expects to be forced to change should not be spending $70bn on its own shares either. Neither the dividend nor the buyback, in other words, is evidence that the board fears the verdict. Nor is it evidence that it does not.

Mr Pichai’s company has always asked users to pay with their attention. It is now asking shareholders to be paid in cash. They are likely to accept.