Alphabet, Google's parent company, reported strong third-quarter results for FY24, driven by significant growth in its cloud business and increased YouTube ad sales due to U.S. election-related spending.
Financial Highlights
- Revenue: Increased by 15% year-over-year (Y/Y) to $88.3 billion, surpassing expectations by $2.0 billion.
- Operating Margin: Improved to 32%, up by 4 percentage points Y/Y.
- Earnings Per Share (EPS): $2.12, beating estimates by $0.27.
Google Cloud
- Revenue: Grew by 35% Y/Y to $11.4 billion.
- Operating Margin: Rose to 17%, an increase of 14 percentage points Y/Y.
YouTube Ads
- Revenue: Increased by 12% to $8.9 billion.
Market Reaction
- Alphabet shares rose nearly 6% in after-market trading.
- Shares of Amazon and Microsoft, Alphabet's top cloud competitors, also saw a slight increase of about 1% after hours.
Business Insights
- Alphabet's mainstay Search business and YouTube ads both saw a 12% increase in revenue.
- The company is heavily investing in AI, with significant improvements in its Gemini AI chatbot and AI-powered Search.
- Capital expenditures rose by 62% to $13 billion in Q3, with expectations for similar spending in Q4.
Analyst Perspectives
- Analysts noted Alphabet's impressive quarter, particularly the strong cloud growth, which is essential for powering AI technologies.
- Google's cloud business, growing at its fastest pace in eight quarters, reached $11.35 billion, exceeding analyst estimates of $10.86 billion.
- The company's new AI tools have shown significant improvements, addressing earlier criticisms of inaccuracy.
Competitive Landscape
- Google's dominance in the digital ad market is being challenged by Amazon and TikTok.
- The Search business is under regulatory scrutiny, with potential threats of a breakup.
Conclusion
Alphabet's Q3 results highlight strong performance in cloud and ad revenues, driven by strategic investments in AI and cloud technologies. The company continues to diversify its revenue base amidst growing competition and regulatory challenges.
