Shares of Alphabet, Google's parent company, dropped by 5% in after-hours trading following the release of their third-quarter results.
A particular point of focus for investors weighing on the share price was the noticeable weak performance in Alphabet’s cloud business, despite beating headline estimates for revenue and earnings.
At the core of the discussion were the figures from the company’s cloud business. While the revenues across most segments either met or exceeded analyst estimates, the Google Cloud segment fell short, reporting a revenue of $8.41 billion against an estimated $8.6 billion.
However, even with this setback, Alphabet boasted impressive figures. The company reported a total revenue of $76.69 billion against an estimated $75.54 billion, with Google’s advertising revenue and YouTube ads revenue surpassing expectations. Additionally, Google’s other revenue and Google Services revenue segments both exceeded estimates. Earnings per share (EPS) stood at $1.55, 10 cents above the estimated $1.45, reflecting a generally robust performance.
Despite reassuring words from CEO Sundar Pichai, there are concerns about Alphabet’s position in the cloud market, especially as it trails behind tech giants like Amazon and Microsoft with Microsoft reporting impressive growth in its Azure cloud computing at the same time. The cloud business’s underperformance this quarter has ignited worries that the gap between Google Cloud and its rivals might be increasing rather than stabilizing. This concern is amplified by the fact that cloud computing is an industry that’s critical for Alphabet’s future growth.
While there is certainly some concern over the cloud business, it’s not all gloomy for Alphabet. The latest results highlighted robust sales figures, surpassing analysts’ expectations, with strong revenues from search advertising and YouTube ads. Additionally, as the digital landscape evolves, generative AI chatbots present a challenge to Google’s dominance in the search sector. Alphabet, recognising this, is striving to incorporate generative AI technology within its ecosystem.
Alphabet’s third-quarter results can be viewed as a mixed bag. While the weaker performance of its cloud segment raised eyebrows, it’s essential to view this in the broader context of an otherwise impressive set of figures. Though investor enthusiasm might be slightly dampened in the short-term by the recent results, its overall trajectory still holds promise with sell-side analysts overall maintaining a positive outlook on the stock given Alphabet’s proven track record, sound financials, and an unwavering vision.