Google parent Alphabet reports 41% jump in third-quarter profit

The world's largest provider of search and video advertisements reported a net profit of almost $19.7bn in the September quarter

Alphabet reported an 11 per cent annual surge in revenue last quarter to more than $76.7 billion. Reuters

Google’s parent company Alphabet reported a 41.5 per cent jump in its third-quarter net profit driven by an increase in Search, YouTube and advertising divisions.

The world's largest provider of search and video advertisements reported a net profit of almost $19.7 billion, the company said. It was 7 per cent up on a quarterly basis.

The California company reported a 11 per cent annual surge in its last quarter’s revenue to more than $76.7 billion, beating analysts’ estimates of $75.9 billion.

The double-digit increase in revenue came after four straight quarters of single-digit growth.

Despite better-than-expected quarterly earnings, the company's shares dropped as much as 6 per cent in after-hours trading to $130.9 a share.

The company’s stock closed 1.7 per cent higher at $138.8 a share on Tuesday, giving Alphabet a market valuation of $1.76 trillion.

“I am pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices and more,” chief executive Sundar Pichai said.

“We are continuing to focus on making AI more helpful for everyone … there’s exciting progress and lots more to come,” he added.

Alphabet earned more than 47 per cent of its third-quarter revenue, or nearly $36.4 billion, from the US market.

In Europe, the Middle East and Africa, the company earned more than $22.6 billion, or more than 29 per cent of its total sales.

Alphabet’s operating income soared 24.5 per cent on an annual basis in the third quarter to about $21.3 billion. Its earnings for each share increased 46.2 per cent yearly to $1.55.

Google services business – which includes advertisements, Android, Chrome, hardware, Maps, Search, Google Play and YouTube – accounted for nearly 88.6 per cent of the company’s total sales.

It added more than $67.9 billion to overall revenue, nearly 10.7 per cent more than the third quarter of 2022.

Google’s advertising revenue from Search, YouTube and other businesses increased 9.4 per cent to more than $59.6 billion in the third quarter.

Ruth Porat, president and chief investment officer of Alphabet, said the “fundamental strength” of the company’s business was driven by growth in Search, YouTube and Cloud businesses.

“We continue to focus on judicious capital allocation to deliver sustainable financial value,” Ms Porat said.

The total revenue from the cloud business grew an annual 22.4 per cent to over $8.4 billion in the September quarter, missing analysts expectation of $8.6 billion.

Google Cloud includes the company’s infrastructure and data analytics platforms, collaboration tools and other services for enterprise customers.

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

"Despite Alphabet topping quarterly earnings and revenue estimates, investors were disappointed by the relatively weak performance at its Google cloud platform,” Jesse Cohen, senior analyst at Investing.com, told The National.

“Google Cloud sales growth came in below market expectations as customers cut back on cloud spending amid the current macro backdrop … the results also demonstrated that it will take time for Alphabet to make money on its AI offerings."

Alphabet’s cloud business, which is bolstered by an uptake in generative AI solutions during the past months, is facing a stiff competition from companies like Oracle, Amazon Web Services and Microsoft Azure.

Alphabet said its operating income in the cloud segment reached $266 million during the quarter. It improved from the third quarter of last year, when the division’s loss was $440 million.

The company’s operating loss from other bets, or subsidiaries, reached about $1.19 billion in the last quarter, narrowed from a loss of more than $1.22 billion in the same period for 2022.

Other bets are derived mainly through the sale of internet offerings, as well as licensing and research and development services.

This includes Alphabet’s X lab, self-driving unit Waymo and other non-Google companies.

Alphabet spent more than $11.2 billion on research and development, nearly 14.6 per cent of its total sales in the third quarter. This was about 9.5 per cent more than the R&D expenditure for the same period in 2022.

YouTube added more than $7.9 billion to Alphabet’s revenue, increasing about 12.4 per cent annually.

Google’s total acquisition costs stood at more than $12.64 billion, up nearly 6.8 per cent on an annual basis, against analysts’ expectations of $12.63 billion.

TACs are payments that search companies make to affiliates and online companies for bringing traffic to their websites. It is a major expense for companies such as Google and Yahoo.

Alphabet’s total cash, cash equivalents and marketable securities reached almost $119.9 billion at the end of September, from $113.7 billion at the end of last year.