Alphabet, Google's Parent Company, Exceeds Revenue and Profit Expectations in Q3, Driven by Strong Cloud Growth

Alphabet, Google's Parent Company, Exceeds Revenue and Profit Expectations in Q3, Driven by Strong Cloud GrowthOctober 30, 2024 - Alphabet, the parent company of Google, announced its third-quarter earnings for the fiscal year 2024 on Tuesday, ending September 30. The report revealed that Alphabet's revenue reached $88

Alphabet, Google's Parent Company, Exceeds Revenue and Profit Expectations in Q3, Driven by Strong Cloud Growth

October 30, 2024 - Alphabet, the parent company of Google, announced its third-quarter earnings for the fiscal year 2024 on Tuesday, ending September 30. The report revealed that Alphabet's revenue reached $88.27 billion, representing a 15% year-over-year increase. Net income climbed to $26.3 billion, a 34% jump from the same period last year. Diluted earnings per share stood at $2.12, signifying a 37% rise compared to $1.55 in Q3 2023. The stock surged nearly 6% in after-hours trading, propelled by the company exceeding both revenue and profit estimates.

Key Highlights from Alphabet's Q3 Earnings:

Revenue and Profit

• Revenue clocked in at $88.27 billion, surpassing analyst expectations of $86.3 billion. This marked a 15% increase from the $76.69 billion recorded in the same period last year.

• Net income surged to $26.3 billion, a 34% improvement compared to $19.69 billion in the previous year's Q3.

• Diluted earnings per share reached $2.12, outperforming analyst expectations of $1.85 and representing a 37% rise from $1.55 in Q3 2023.

Operational Metrics

• Operating profit reached $28.52 billion, a notable increase from the $21.34 billion recorded in the corresponding period of the previous year.

• The operating margin stood at 32%, a significant improvement from the 28% recorded in the previous year's Q3.

• Total traffic acquisition costs (TAC) came in at $13.72 billion, slightly higher than the previous year's $12.64 billion and meeting analyst expectations of $13.53 billion.

Financial Position

• Alphabet held a total of $932.3 billion in cash, cash equivalents, and marketable securities as of September 30, 2024. This figure was lower than the $1,109.16 billion held as of December 31, 2023.

• Alphabet's total employee count stood at 181,269 as of September 30, 2024, slightly lower than the 182,381 employees at the end of Q3 2023.

Business Performance

By Segment

• Search and other revenue reached $49.39 billion, up from $44.03 billion in the previous year.

• YouTube advertising revenue reached $8.92 billion, a significant increase from $7.95 billion in the previous year and exceeding analyst expectations of $8.89 billion.

• Google Network revenue was $7.55 billion, slightly lower than the previous year's $7.67 billion.

• "Other Bets" revenue reached $388 million, up from $297 million in the previous year.

• Google Cloud revenue soared to $11.35 billion, representing a significant jump from $8.41 billion in the previous year and exceeding analyst expectations of $10.88 billion.

By Region

• Revenue from the Asia Pacific region reached $14.55 billion, a 11% increase from the $13.13 billion recorded in the previous year.

• Revenue from the United States reached $43.12 billion, a 19% increase from $36.55 billion in the previous year.

• Revenue from other Americas reached $5.09 billion, a 12% increase from $4.55 billion in the previous year.

• Revenue from Europe, the Middle East, and Africa (EMEA) reached $25.47 billion, a 12% increase from $22.66 billion in the previous year.

Costs and Expenses

• Cost of revenues reached $36.48 billion, up from $33.23 billion in the previous year.

• Research and development expenses reached $12.45 billion, up from $11.26 billion in the previous year.

• Sales and marketing expenses reached $7.23 billion, up from $6.88 billion in the previous year.

• General and administrative expenses reached $3.60 billion, down from $3.98 billion in the previous year.

Executive Commentary

Sundar Pichai, CEO of Alphabet and Google, stated, "The company is experiencing tremendous momentum. Our unwavering commitment to innovation and our long-term focus and investments in artificial intelligence are starting to pay off. In search, our new AI capabilities are expanding the boundaries of user search, making it more comprehensive and diverse in terms of both content and methods. In cloud computing, our AI solutions are helping existing customers more deeply leverage our products while attracting new ones and securing larger deals. YouTube's combined advertising and subscription revenue surpassed $50 billion for the first time in the past four quarters. In Q3, we achieved robust revenue growth once again and effectively enhanced profitability by continuously optimizing efficiency. I eagerly anticipate delivering more groundbreaking advancements for consumers, clients, and creators worldwide."

Earnings Analysis

The earnings report released by Alphabet, Google's parent company, revealed that the company exceeded market expectations for both revenue and profit in Q3. As Google intensifies its expansion in the field of artificial intelligence, the outstanding performance of the cloud computing department has become a bright spot in the company's performance. Alphabet's revenue increased by 15% year-over-year. Notably, revenue from the cloud computing segment reached $11.35 billion, a nearly 35% increase from the $8.41 billion recorded a year ago. This growth rate significantly surpasses that of the previous year and outperforms the 28.8% growth observed in Q2.

Alphabet attributes the robust performance of its cloud computing department to its AI products, particularly subscription services tailored for enterprise clients. During a conference call with investors, Pichai stated that the company's "full-stack" AI products are now operating at scale and being utilized by billions of Google users, creating a "virtuous cycle."

Alphabet's impressive quarterly results set the stage for other tech giants scheduled to release their earnings reports later this week. Meta and Microsoft are slated to release their financial reports on Wednesday, while Apple and Amazon plan to unveil theirs on Thursday.

Impact of AI Spending

Although Google did not disclose specific revenue figures generated from its AI services, investors are closely monitoring whether AI spending is beginning to positively impact corporate profits. As a prominent player in the AI surge, Google, along with other tech giants, has significantly increased investments in this domain over the past few years. These funds have been primarily allocated towards constructing new data centers to support the development and operation of AI models.

Alphabet's capital expenditures in Q3 reached $13.1 billion, a substantial 62% increase compared to the same period last year.

Advertising Business

Alphabet reported advertising revenue of $65.85 billion, a rise from $59.65 billion in the previous year, indicating continued growth in Google's advertising business. However, with intensifying competition from companies like Amazon, Google's search advertising business is projected to see its market share fall below 50% next year.

Data from SensorTower reveals that two of Google's top advertising customers, e-commerce companies Shein and Temu, saw a decline in their advertising spending in the United States compared to the same period last year. These two companies had previously propelled growth for both Google and Meta with their substantial advertising expenditures since the beginning of last year.

YouTube Performance

YouTube's advertising revenue exceeded analyst expectations. As the world's largest video streaming platform, YouTube continues to maintain double-digit growth despite facing increasing competitive pressure from other advertising clients like Netflix, TikTok, and Amazon.

Other Bets

Alphabet's "Other Bets" segment, which includes its life sciences subsidiary Verily and autonomous vehicle subsidiary Waymo, generated revenue of $388 million in Q3, up from $297 million in the previous year. Last week, Waymo successfully secured $5.6 billion in funding to expand its autonomous taxi service in cities like Los Angeles, San Francisco, Phoenix, and others.

Google Lens

Pichai stated that Google Lens, the company's image recognition product that uses mobile cameras and photos for visual search, now boasts over 20 billion monthly searches. He added that it is one of the fastest-growing search products and is frequently used in shopping scenarios.

Restructuring

Alphabet underwent significant internal restructuring in Q3, impacting both its management structure and core business areas. Earlier this month, Alphabet announced the appointment of Nick Fox as the head of search, ads, and maps products. This position was previously filled by Prabhakar Raghavan, who held the role of head of Google's search and advertising businesses