Alphabet Ad Sales Are Strong, But Cloud Business Is Poor

Alphabet, Google’s parent company, saw an increase in sales and earnings as digital advertising rebounded, but investors were unimpressed by its cloud computing division, which lags behind competitors Microsoft and Amazon.

According to FactSet statistics, Alphabet reported $76.7 billion in quarterly sales on Tuesday, up 11% year on year and approximately in line with analysts’ estimates of $76 billion.

The internet company reported a 42 percent increase in earnings to $19.7 billion, beating Wall Street’s projection of $18.5 billion.

“Investors were disappointed by its relatively weak performance at its Google Cloud Platform, which is at risk of falling further behind” Microsoft Azure and Amazon Web Services, wrote Jesse Cohen, an analyst at, in a note.

In after-hours trading on Tuesday evening, Alphabet’s stock was down more than 6%.

Google has concentrated on generative artificial intelligence, the technique that made headlines last November when OpenAI launched the A.I. chatbot ChatGPT. Google said in July that it will devote greater resources to the development of such technology while decreasing other expenses. Google has laid off hundreds of recruiters and reconfigured other elements of the corporation in the previous month.

The corporation employed 182,381 workers as of September 30, compared to over 119,000 at the end of 2019. Alphabet, like other tech companies, overhired during the epidemic and began to reverse those practices in January when it laid off 6% of its workforce or 12,000 people.

Investors anticipated Alphabet to slash even more expenses in the third quarter. The company’s operating income, a measure of profitability, was slightly lower than the $21.6 billion predicted by experts.

Google Cloud, the company’s subsidiary that provides software and technology services to other businesses, grew sales by 22% to $8.4 billion. Analysts, on the other hand, predicted $8.6 billion.

Google has spent in making its cloud business a destination for artificial intelligence software, but the quarter’s results disappointed investors who had anticipated A.I. would serve as a launching pad for the company. In the third quarter, the division earned $266 million.

Sundar Pichai, Alphabet’s CEO, said in a conference call on Tuesday that Google Cloud was gaining traction and that he’s seen evidence that the unit’s performance will improve. On the conference call, Ruth Porat, the company’s president and chief investment officer, told investors that the company’s cloud clients had been more frugal with their spending.

Google’s quarterly performance contrasted with Microsoft’s numbers, which also came out on Tuesday and greatly above projections due to increased demand for its cloud technology.

Google’s main business, the search engine and related services, increased 11 percent to $44 billion in the second quarter, just above analysts’ expectations of $43.3 billion.

Advertisement sales on YouTube, Google’s video platform, increased 12 percent to $7.95 billion, well ahead of analysts’ expectations of $7.8 billion.

“It is a testament to the nature of Google’s market dominance in search and ads that it can beat” profit and revenue projections while seeing its stock fall, said Max Willens, an analyst at Insider Intelligence. “Cloud computing is a much lumpier business than advertising.”

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