Alphabet Inc.’s business expanded faster than it has in more than a year after Google’s parent company reported a rebound in advertising that pushed quarterly revenue up 11% year-over-year.
“The fundamental strength of our business was apparent again in Q3, with $77 billion in revenue, up 11% year over year, driven by meaningful growth in Search
and YouTube, and momentum in Cloud. We continue to focus on judicious capital allocation to deliver sustainable financial value,” Alphabet Chief Financial Officer Ruth Porat said in a statement.
Alphabet
GOOGL,
GOOG,
reported fiscal third-quarter net earnings of $19.7 billion, or $1.55 a share, compared with net earnings of $13.9 billion, or $1.06 a share, in the year-ago quarter.
Total revenue was $76.7 billion, compared with $69.1 billion a year ago. Sales minus total acquisition costs (TAC) was $64.1 billion, compared with $57.3 billion a year ago.
Analysts surveyed by FactSet had expected on average net earnings of $1.46 a share on revenue of $75.96 billion and ex-TAC revenue of $63.1 billion.
Despite the better-than-expected results, Google’s stock initially dropped nearly 6% in extended trading Tuesday before briefly rallying.
Several analysts said investors were disappointed by the relatively tepid performance for the company’s Google Cloud platform, which is at risk of falling further behind competition from Microsoft Corp.’s
MSFT,
Azure and Amazon.com Inc.’s
AMZN,
AWS.
“Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition,” Max Willens, an analyst at market researcher Insider Intelligence, said in a report. “While the traction it has among AI startups may bear fruit in the long run, it is not currently helping Google Cloud enough to satisfy investors.”
During a conference call with analysts late Tuesday, Porat said cloud growth “remained strong across geographies, industries and products,” but its rate of expansion “reflects the impact of customer optimization efforts,” a phrase that generally refers to clients cutting back on spending.
Alphabet Chief Executive Sundar Pichai, in response to an analyst’s question later about lower cloud spending, said, “Google “leaned into it to help customers given some other challenges they were facing.” Pichai added that Google Cloud has shown momentum, and he’s seen signs that the unit’s performance will stabilize.
Shares of Alphabet are up 57% so far this year, while the broader S&P 500 index
SPX
has improved 11%.
Google’s total advertising sales climbed to $59.65 billion from $54.5 billion a year ago, but edged analysts’ average expectations of $59.2 billion. Google Cloud brought in $8.4 billion, compared with $6.9 billion last year. YouTube ad sales rose to $7.95 billion from $7.07 billion a year ago.
Investors and Wall Street are focused on how AI can be monetized. While Microsoft Corp.
MSFT,
is selling its AI version of Bing, Google’s competing entry, Bard, is still being tested by users.
Alphabet is also ramping up AI initiatives to improve operational efficiency and productivity for 2023 and beyond. The company is using AI in its finance organization and analytics. But Alphabet did not break out AI revenue in Tuesday’s earnings report.
When asked during the analyst call about the war in the Middle West’s impact on Alphabet’s business, Porat called it a “tragic” and “painful time.”
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