Google’s new spending surge shows a company playing catchup

SAN FRANCISCO: Alphabet Inc.’s first-quarter results came with a clear message to Wall Street: The company is embarking on a new spending binge to chase its biggest rivals.

Google’s parent posted the strongest sales growth in almost four years on Monday, indicating marketers kept flocking to its services amid rising scrutiny of digital ads. But the company also spent at historic levels, nearly tripling capital expenditure for the quarter to $7.7 billion.

Almost all of that spending went to buttress newer cloud and consumer-device businesses that lag behind leaders Amazon.com Inc. and Apple Inc. After neglecting these markets for years in favor of its main ad businesses and riskier moonshot bets, Alphabet is now splurging to catch up. “The big story from the results was the significant rise in expenses,” Brian Wieser, an analyst at Pivotal Research Group, wrote in a note to investors.

Other tech giants are spending prodigiously, too, as they hunt for new markets. In the fourth quarter, Amazon’s capex rose 50% and Facebook Inc.’s spending nearly doubled.

Alphabet’s rising first-quarter investments partly reflected a $2.4 billion real-estate deal. But even without that, capex more than doubled from a year earlier.

Chief financial officer Ruth Porat cautioned investors to expect more of the same. “I wouldn’t suggest a one-off in terms of the investment we’re making,” she said.