Alphabet analysts are closely monitoring the healthy of the digital advertising market.
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Alphabet
stock fell in after-hours trading Tuesday despite stronger-than-expected quarterly earnings from the Google parent.
The earnings beat was overshadowed by results in the company’s cloud computing business, where revenue came in a little shy of Wall Street estimates.
For the September quarter, Alphabet (ticker: GOOGL) reported revenue of $76.69 billion, up 11% from a year ago, and ahead of the Wall Street consensus forecast of $76 billion. Earnings per share were $1.55, nine cents ahead of the consensus at $1.46 a share.
Ad revenue was $59.6 billion, above the Wall Street consensus forecast of $59.6 billion. YouTube ad revenue was $8 billion, also ahead of the Street at $7.8 billion. Google Cloud revenue in the quarter was $8.4 billion, up 22%, but still falling short of the Street forecast at $8.6 billion, and slowing from 28% in the previous quarter.
On the company’s conference call with investors, CFO Ruth Porat said that the cloud business reflected “the impact of customer optimization efforts.” Note that the company’s shortfall in its cloud business is in sharp contrast to better-than-expected growth in
Microsoft
‘s Azure cloud business in the same quarter.
Another negative in the quarter was a slight miss at the operating income line. RBC Capital analyst Brad Erickson said in an initial research take on the quarter that operating income and operating margin both came in slightly below estimates. Per-share earnings were aided by a lower-than-expected tax rate, he said.
“I’m pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices and more,” CEO Sundar Pichai said in the company’s earnings press release. “We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”
The company repurchased $15.8 billion of common stock in the quarter.
Last quarter, Alphabet announced that Porat was shifting to a new role as president and chief investment officer for Alphabet and Google, overseeing the company’s Other Bets portfolio. The change was official effective Sept. 1, but Alphabet has yet to name a successor to her as CFO.
There will likely be questions on the post-report earnings call on whether Porat’s appointment to the new role might lead to the spinout or sale of the company’s noncore holdings, such as its Waymo autonomous vehicle business and its Verily healthcare unit.
For the December quarter, consensus estimates as tracked by FactSet call for total sales of $84.9 billion, with profit of $1.63 a share.
Alphabet shares are up about 55% for the year to date, including a 12% move since the last earnings report.
Write to Eric J. Savitz at [email protected]
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