Oct 24 (Portal) – Google parent Alphabet’s (GOOGL.O) cloud business hit its lowest level in at least 11 quarters, sending the company’s shares down 5.7% in after-hours trading, as cloud sales fell -Unit of rival Microsoft (MSFT.O) boomed.
The decline in Google’s stock price, despite beating Wall Street’s earnings and revenue estimates, shows how much investors want the company to make gains in the artificial intelligence space and shows that its cloud business is outperforming Microsoft’s Azure and Amazon.com’s AWS remain competitive.
Fears of a slowing global economy have led companies to curb spending on cloud services, including expensive AI tools, slowing revenue growth at Google’s cloud unit to 22.5% in the third quarter, down from 28% in the third quarter previous three-month period.
Google Cloud revenue rose 22.5% to $8.41 billion in the third quarter, its slowest growth since at least the first quarter of 2021. The cloud unit reported operating income of $266 million, compared with a Operating loss of $440 million a year ago. Wall Street expected cloud computing revenue of $8.62 billion.
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Chief Financial Officer Ruth Porat said in a conference call Tuesday that cloud growth in the third quarter was due to “customer optimization efforts,” without elaborating.
In contrast, revenue at Microsoft’s Intelligent Cloud unit, which houses its cloud computing platform Azure, rose to $24.3 billion, compared with analysts’ estimate of $23.49 billion, according to LSEG data showed. Azure revenue rose 29%, exceeding market research firm Visible Alpha’s growth estimate of 26.2%. Microsoft shares rose 5% in after-hours trading.
“Although Alphabet beat quarterly profit and revenue estimates, investors were disappointed by the relatively weak performance of its Google Cloud platform, which risks falling further behind Azure and AWS,” said Jesse Cohen, senior analyst at Investing.com.
A sign is pictured outside a Google office near the company’s headquarters in Mountain View, California, United States, May 8, 2019. Portal/Paresh Dave/File Photo Acquire License Rights
While advertising spending was high in some sectors such as retail and travel, industry executives and analysts noted a budget decline in some areas, impacting Alphabet’s main source of revenue.
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The company reported third-quarter advertising revenue of $59.65 billion, compared to $54.48 billion a year ago. Analysts on average had expected advertising revenue of $59.12 billion. In the company’s advertising segment, the company reported revenue from YouTube ads of $7.95 billion, compared to $7.07 billion a year ago.
Alphabet reported net income of $19.69 billion for the July-September period. compared to $13.91 billion last year.
Revenue for the quarter ended Sept. 30 was $76.69 billion, compared with estimates of $75.97 billion, according to LSEG data.
Google said it spent $8.06 billion on capital expenditures in the third quarter, “predominantly” driven by investments in its technical infrastructure. Servers are the largest component, followed by data centers, as investments in AI computing have increased significantly, Porat said.
Alphabet laid off about 12,000 employees, or about 6% of its global workforce, earlier this year as it cut staff in the face of a “different economic reality.” The company also laid off employees from its global recruiting team in September.
The company said it recorded $2.1 billion in severance and related expenses in the first nine months of the year.
Reporting by Akash Sriram in Bengaluru and Max A. Cherney in San Francisco; Edited by Anil D’Silva and Aurora Ellis
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