Alphabet Profits But Cloud Sales Disappoints

Alphabet delivered a healthy set of financial results for its third quarter, but Wall Street reacted negatively after Google Cloud revenues missed expectations despite the AI boom.

Shares in Google fell 8.14 percent to $127.61 as of Wednesday afternoon due to the cloud miss, despite profits and revenues beating analyst expectations.

The miss in Google Cloud revenues stood in marked contrast to Microsoft’s Azure growth in the same period.

Q3 financials

Yet Alphabet’s posted results in its third quarter were robust and positive.

For the third quarter ending 30 September, Alphabet posted a net profit of $19.7bn, from $13.9bn in the same year-ago quarter.

Overall revenue increased 11 percent to $76.7bn from $69bn a year earlier, which was the the first return to double digit growth in more than a year.

“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,” said CEO Sundar Pichai. “We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.

Digging down into the divisional results, we can see that ‘Google Search & Other’ posted a Q3 revenue of $44bn (up from $39.5bn a year earlier); ‘YouTube Ads’ posted revenues of $7.9bn (up from $7bn); ‘Google Network’ posted revenue of $7.7bn (down from $7.8bn); ‘Google Advertising’ posted revenue of $59.6bn (up from $54.5bn); and ‘Google Other’ posted revenue of $8.3bn (up from $6.9bn a year earlier).

“Google Cloud” posted revenues up 22 percent at $8.4bn (from $6.9bn), the slowest growth since at least the first quarter of 2021. Revenue here also missed the mark by $20m, as analysts had been expecting revenues of $8.64bn.

Investors want the firm to deliver gains from artificial intelligence, and show Google Cloud remains competitive against a more powerful Amazon.com’s AWS and Microsoft Azure.

The “Other Bets” division posted revenues of $297m, up from $209m a year earlier.

In July Google Ruth Porat confirmed she will step down from the CFO role, in order to take charge of Google’s ‘Other Bets’ portfolio.

Google had also in January revealed it was axing 12,000 jobs (or 6 percent of its workforce) and recorded severance and related charges of $2.1 billion for the first nine months of the year.

AI theme

The issue of AI being an important factor nowadays in the financial results of tech giants was noted by Forrester principal analyst Lee Sustar.

“AI was again a central theme for the cloud services components of the Microsoft and Alphabet earnings calls for the last quarter,” said Sustar.

“Microsoft’s report of a big upswing in Microsoft Cloud with $31.8 billion in the quarter – a 24 percent increase over the same period a year ago – certainly captures some of the big spending on AI,” said Sustar.

“For Alphabet, Google Cloud revenue remains a fraction of the Alphabet total, but its quarterly results show that it has stabilised as a modest moneymaker, with $266 million in the quarter compared to a loss of $440 million in the period a year ago,” said Sustar. “The AI boom doesn’t yet show up in Google Cloud’s results, but Google’s scale positions the company to be a key player in enterprise deployments of AI.”