Google parent Alphabet to invest $5bn in Waymo amid profit and stock surge

The company aims to make its self-driving unit the 'world’s leading autonomous driving company' as shares up nearly 32% in 2024

Waymo provides 50,000 weekly paid trips, mainly in San Francisco and Phoenix, according to Alphabet. AFP

Google parent company Alphabet on Tuesday announced a $5 billion multi-year investment in its self-driving unit, Waymo, after its second-quarter profit and revenue passed analysts' estimates.

“This new round of funding will enable Waymo to continue to build the world’s leading autonomous driving company,” Alphabet’s chief financial official and president Ruth Porat said during the earnings call.

Ms Porat said the company is an “important example” of Alphabet’s long-standing investments.

“We are grateful for their immense vote of confidence in our team and recognising the amazing progress we’ve made with our technology, product and commercialisation efforts,” Waymo’s chief executive Tekedra Mawakana said in a post on X.

During the earnings call, Alphabet’s chief executive Sundar Pichai said that Waymo, which has completed 2 million trips thus far, provides 50,000 weekly paid trips, mainly in San Francisco and Phoenix.

In 2020, the company raised $2.25 billion from outside investors. It was followed by another funding round of $2.5 billion in 2021. Last month, Waymo eliminated the waitlist, making its rides available to all users in San Francisco.

Alphabet’s other bets unit, which includes its self-driving car firm Waymo, added $365 million in second-quarter revenue, up from $285 million from the prior year period.

But its losses expanded to $1.13 billion in the June quarter, from $813 million in the same period last year.

The California-based company’s second-quarter total earnings were driven by a surge in advertising sales and increasing demand for its cloud-computing services.

Its total net income in the June quarter jumped 28.6 per cent to $23.6 billion, passing estimates of $22.9 billion.

The company's revenue during the April-June period surged 14 per cent to almost $85 billion, against analysts’ expectations of $84.2 billion.

But advertising revenue from YouTube, the world's largest provider of search and video advertisements, missed analysts' expectations at $8.6 billion.

"The company's massive suite of income-generating offerings did more than enough to offset an otherwise slower-than-expected picture for YouTube ads – a business that has grown tremendously important for Sundar Pichai's bigger plan,” Thomas Monteiro, senior analyst at Investing.com, told The National.

But analysts expect that the Alphabet businesses that did not do particularly well this quarter are likely to pick up a good pace over the next year.

“This is partly due to the expected solid rebound in ad growth as capital costs grow cheaper and smaller companies find themselves with a bit more cash to spare, as well as the need for faster growth,” said Mr Monteiro.

Alphabet’s earnings per share soared 31.2 per cent to $1.89, compared to the expected $1.84.

Despite better-than-expected earnings, the company’s stock dropped 2.18 per cent to trade at $179.59 a share in after-hours market trading.

However, Alphabet's stock has remained strong in 2024, having risen nearly 32 per cent year-to-date.

It closed almost 0.14 per cent higher at 183.60 a share on Tuesday, giving the company a market value of $2.26 trillion.

On Tuesday, it also announced a cash dividend of 20 cents a share that will be paid on September 16 to stockholders of record as of September 9.

Sergey Brin, one of the company's co-founders, owns more than 730 million Class B and C shares, entitling him to a payout of $146 million.

Another co-founder, Larry Page, who holds 389 million class B shares, is expected to receive almost $78 million.

US market leads in revenue

Alphabet earned more than 48 per cent of its second-quarter revenue, or more than $41.1 billion, from the US market.

In Europe, the Middle East and Africa, the company earned nearly $24.7 billion, or more than 29 per cent of its total sales.

Alphabet’s operating income soared 25.5 per cent on an annual basis in the last quarter to about $27.4 billion.

Google services business – which includes advertisements, Android, Chrome, hardware, Maps and Google Play – accounted for nearly 87.2 per cent of the company’s total sales.

It added almost $73.9 billion to overall revenue, nearly 11.5 per cent more than the second quarter of 2023.

Google’s advertising revenue from Search, YouTube and other businesses increased 11.1 per cent to more than $64.6 billion in the last quarter.

The total revenue from its cloud business grew an annual 28.8 per cent to more than $10.3 billion in the June quarter, exceeding analysts' expectation of $10.2 billion.

The company said this is the first time its cloud division crossed $10 billion in revenue.

It generates revenue mainly from fees received for cloud platform services and workspace collaboration tools.

The company has been investing heavily in artificial intelligence as it integrates generative AI capabilities into its search and other services.

“We are innovating at every layer of the AI stack … our long-standing infrastructure leadership and in-house research teams position us well as technology evolves and as we pursue the many opportunities ahead,” said Mr Pichai.