Google parent Alphabet (GOOGL) reported third quarter earnings that topped consensus estimates while revenue edged by views. GOOGL stock fell Wednesday as cloud-computing sales growth in Q3 missed amid apparent market share loss to Microsoft (MSFT) amid a battle in artificial intelligence.
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Reported after the market close on Tuesday, Google earnings for the quarter ending Sept. 30 jumped 46% to $1.55 a share.
In Q3, Google’s gross revenue rose 11% to $76.69 billion.
The tech giant reports Google earnings under generally accepted accounting principles, also known as GAAP. Analysts had projected EPS of $1.46 on revenue of $76 billion.
Google Stock: Cloud Growth Misses
Google said cloud-computing revenue rose 22% to $8.41 billion, missing estimates of $8.64 billion. Google’s cloud-computing business posted 28% growth in the June quarter.
“Google Cloud appears to have ceded market share to Microsoft Azure,” said KeyBanc Capital Markets analyst Justin Patterson in a report.
Microsoft’s cloud computing revenue rose 24% to $31.8 billion in the September quarter.
Microsoft is the biggest investor in artificial intelligence startup OpenAI. Microsoft’s cloud customers have been developing apps using OpenAI’s foundation models.
“While Google’s cloud miss will raise concerns on AI positioning, Google suggested some stabilization in the quarter and cloud represents just 2% of total profits,” said Bank of America analyst Justin Post in a report.
Amazon Web Services, part of Amazon.com (AMZN) is the biggest provider of cloud computing services. Amazon reports Q3 earnings on Thursday.
On the stock market today, GOOGL stock fell 9.5% to close at 125.61.
At Monness, Crespi, Hardt & Co., analyst Brian White on Wednesday downgraded GOOGL stock to neutral from buy. “The tone of the earnings call was riddled with evasive commentary with no clear path forward during a period that increasingly demands major AI investments, combined with the risk of stronger competitors and a darkening macro environment,” White said in a report.
Also, Google’s Q3 advertising revenue rose 9% to $59.6 billion vs. estimates of $59.1 billion.
GOOGL Stock: YouTube Rebounds
Meanwhile, YouTube ad revenue rose 12% to $7.95 billion. Analysts had estimated YouTube ad revenue of $7.82 billion.
At market research firm Insider Intelligence, analyst Max Willens said in a report: “Cloud computing is a much lumpier business than advertising, and one where Google is facing stiff competition. While the traction it has among AI startups may bear fruit in the long run, it is not currently helping Google Cloud enough to satisfy investors.”
RBC Capital analyst Brad Erickson said in a report: “Google beat modestly on top-line driven largely by search and to a lesser degree on YouTube, which was partially offset by a slight miss out of cloud and networks.”
Google Stock Buybacks
At Evercore ISI, analyst Mark Mahaney said in a report: “Our best explanation is that as a secondary cloud for many customers, Google Cloud likely started and will end cost optimization later than Amazon Web Services.”
In Q3, capital spending came in at $8.1 billion, below consensus estimates of $9.1 billion. Also, Google repurchased $15.78 billion of its own stock, about the same as in the June quarter.
Google’s Q3 traffic acquisition costs rose 7% to $12.64 billion. Google’s internet search-related payments to Apple (AAPL) are a key issue in the Department of Justice’s antitrust lawsuit vs. Alphabet.
Heading into the Google earnings report, Alphabet shares have gained 55% in 2023.
Also, GOOGL stock holds a Relative Strength Rating of 95 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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