Alphabet’s Q3 Earnings: Exceeding Expectations with Cloud Concerns
Alphabet (ticker: GOOGL) recently reported its earnings for the September quarter, displaying strong financial performance. While the company managed to surpass revenue and earnings forecasts, the highlight of their earnings beat was overshadowed by challenges faced within their cloud computing sector.
Earnings Surpass Expectations
For the third quarter, Alphabet reported a total revenue of $76.69 billion, marking an impressive 11% increase from the previous year. This figure exceeded the Wall Street consensus forecast, which had expected revenue to reach $76 billion. The company’s earnings per share also performed admirably, coming in at $1.55, which was nine cents above the consensus estimate of $1.46 per share.
Ad Revenue and YouTube Performance
Alphabet’s ad revenue reached $59.6 billion, surpassing the Wall Street consensus forecast, which had projected $59.6 billion. In addition, YouTube ad revenue stood at $8 billion, outpacing the Street’s expectations of $7.8 billion.
Cloud Business Challenges
However, it was Alphabet’s cloud business that drew the spotlight for all the wrong reasons. Google Cloud’s revenue for the quarter amounted to $8.4 billion, marking a commendable 22% increase. Nevertheless, it fell short of the Street’s forecast, which had anticipated $8.6 billion in revenue. This also signified a slowdown from the previous quarter, where the cloud business had grown by 28%. On the company’s conference call with investors, CFO Ruth Porat attributed this underperformance to “the impact of customer optimization efforts.”
Contrasting Cloud Performance
Notably, Alphabet’s struggles in the cloud business are in stark contrast to the better-than-expected growth experienced by Microsoft’s Azure cloud business during the same quarter.
Operating Income and Margin Concerns
Another concern stemming from the quarter was a slight miss at the operating income line. RBC Capital analyst Brad Erickson pointed out that both operating income and operating margin fell slightly below estimates. It’s worth noting that the positive aspect of per-share earnings was partly attributed to a lower-than-expected tax rate.
Despite the challenges faced by the company, CEO Sundar Pichai expressed his optimism. In the company’s earnings press release, Pichai stated, “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.” He emphasized Alphabet’s commitment to making AI more helpful for everyone and hinted at exciting progress on the horizon.
Despite the mixed financial results, Alphabet’s shares have displayed resilience throughout the year, with a 55% increase year-to-date, including a 12% surge following the last earnings report.