AI is full of energy! Google's third-quarter cloud revenue surged by 35%, total revenue unexpectedly accelerated, jumping more than 6% after hours | Financial Report Insights
In the third quarter, Alphabet, Google's parent company, saw a 15% year-on-year increase in total revenue, with EPS profit up nearly 37%, far exceeding expectations. Among all businesses, cloud revenue saw the fastest growth, with cloud business operating profit increasing more than six times year-on-year, reaching a new quarterly high. Capital expenditures, after increasing by nearly 10% in the second quarter, decreased by 0.9%, slightly higher than expected. Advertising revenue in the third quarter increased by over 10%, with Google Search and YouTube ad revenue slowing for two consecutive quarters but still exceeding expectations. YouTube ad and subscription revenue surpassed $50 billion in a single quarter for the first time in a year. The CEO stated that the multimodal AI assistant Astra will be launched as early as next year, and over 25% of Google's new code is written by AI
In the third quarter of this year, Alphabet, the parent company of Google, saw better-than-expected revenue growth across its major businesses. This includes YouTube advertising, which lagged in the second quarter, and the application of artificial intelligence (AI) technology driving cloud business growth beyond Wall Street expectations, leading to a rapid increase in Google Cloud revenue by over 30%.
After the US stock market closed on Tuesday, October 29th, Alphabet released its financial data for the third quarter ending September 30, 2024.
1) Key Financial Data
Revenue: Revenue in the third quarter was approximately $88.27 billion, a year-on-year increase of 15.1%, exceeding analysts' expectations of $86.45 billion and a 13.6% year-on-year increase from the second quarter.
EPS: Diluted earnings per share (EPS) in the third quarter was $2.12, a 36.8% year-on-year increase, surpassing analysts' expectations of $1.84 and a 31.3% year-on-year increase from the second quarter.
Operating Profit: Operating profit in the third quarter was around $28.52 billion, a 33.6% year-on-year increase, exceeding analysts' expectations of $26.67 billion and a 25.6% year-on-year increase from the second quarter. The operating profit margin in the third quarter was 32%, up 4 percentage points year-on-year, surpassing analysts' expectations of 31.4%, and a 3 percentage point increase from the second quarter to 32%.
Net Profit: Net profit in the third quarter was $26.3 billion, a 33.6% year-on-year increase, surpassing analysts' expectations of $22.8 billion and a 28.9% year-on-year increase from the second quarter.
Capital Expenditure: Capital expenditure in the third quarter was $13.06 billion, slightly higher than analysts' expectations of $12.88 billion, and nearly a 10% increase from the second quarter to $13.186 billion.
2) Segment Data
Advertising: Revenue from Google's advertising business in the third quarter was approximately $65.85 billion, a 10.4% year-on-year increase, slightly above analysts' expectations of $65.5 billion and an 11.1% year-on-year increase from the second quarter. Within this, YouTube advertising revenue in the third quarter was $8.92 billion, a 12.2% year-on-year increase, slightly above analysts' expectations of $8.89 billion and a 13% year-on-year increase from the second quarter. Revenue from Google Network businesses like AdSense in the third quarter was $7.55 billion, a 1.6% year-on-year decrease, slightly below analysts' expectations of $7.41 billion and a 5.2% year-on-year decrease from the second quarter.
Search: Within Google's advertising business, revenue from Google Search and other services in the third quarter was $49.39 billion, a 12.2% year-on-year increase, slightly above analysts' expectations of $49.08 billion and a 13.8% year-on-year increase from the second quarter.
Google Cloud: Revenue from Google Cloud in the third quarter was $11.35 billion, a year-on-year increase of approximately 35%, exceeding analysts' expectations of $10.79 billion and a 28.8% year-on-year increase from the second quarter. Operating profit from Google Cloud in the third quarter was approximately $1.95 billion, a 632% year-on-year increase, surpassing analysts' expectations of $1.11 billion
Alphabet's CEO Sundar Pichai pointed out in the announcement of the financial report that the company has long been focusing on and investing in AI, benefiting consumers and partners through AI tools.> "In terms of search, our new AI features are expanding people's search scope and methods. In the cloud, our AI solutions are helping existing customers to more deeply apply products, attracting new customers, and winning bigger deals."## Capital expenditure declines after a sharp increase in the second quarter[Wall Street News](https://wallstreetcn.com/articles/3722524) previously mentioned that in the second quarter of this year, Alphabet's revenue and profits exceeded expectations, but the stock price fell by over 8% in the week after the financial report was released. This market performance shows that investors are becoming increasingly impatient with tech companies' heavy investment in AI for profit. Concerns about the return on massive AI investments are growing, and during the second quarter earnings call, Pichai emphasized that the risk of underinvestment in AI at Alphabet far outweighs the risk of overinvestment.The financial report released this time shows that Alphabet's capital expenditure in the third quarter did not continue the strong growth momentum of the second quarter. After a nearly 10% increase in the second quarter, capital expenditure in the third quarter decreased by over 0.9% compared to the previous quarter. However, it still exceeded analysts' expectations, as analysts had predicted a 2.3% decrease in capital expenditure for the third quarter.Alphabet stated that it expects the company's capital spending to further expand by 2025. The company is focusing on efficiency to free up funds for AI investment.Some comments pointed out that the third-quarter capital expenditure amount was only about $200 million higher than Wall Street's expectations, which is not a significant difference, and the profit growth of Alphabet's core business offset this loss.## Google Search and YouTube ad revenue slow down for two consecutive quarters but still exceed expectationsIn the third quarter, Google's core business advertising revenue slightly slowed down from the 11.1% growth rate in the second quarter, still in double digits but lower than expected, with analysts predicting a growth rate drop to nearly 10%.In the advertising business, both Google Search and YouTube revenue growth have slowed for two consecutive quarters, indicating challenges in the advertising business. Market research firm eMarketer predicts that with increased competition from Amazon and other competitors, Google's search advertising market share will drop to less than 50% next year.However, the slowdown in revenue for Search and YouTube is lower than analysts' expectations. Even YouTube ad revenue, which dragged down advertising revenue growth in the second quarter, exceeded expectations.Analysts expected YouTube ad revenue growth to slow down from 13% in the second quarter to 11.8% in the third quarter, but the financial report revealed that YouTube ad revenue growth still exceeded 12%.CEO Pichai revealed during the financial report announcement that YouTube's combined advertising and subscription revenue in the third quarter exceeded $50 billion, marking the first time in the past four quarters that total revenue in a single quarter surpassed $50 billionRegarding YouTube, there is an interesting figure that reflects its performance. Google acquired YouTube for $1.65 billion in 2006. Based on data from the third quarter report, YouTube's advertising revenue now reaches approximately $1.65 billion for Google every 17 days.## Multi-Modal AI Assistant Astra to be Launched as Early as Next YearDuring the earnings call, Pichai listed some achievements in the AI field: at Google, over 25% of new code is already written by AI; AI Overviews have improved user search satisfaction.Pichai also mentioned a multi-modal AI project called Astra, stating, "(Google) is building an experience where AI can see and reason about the world around you. The Astra project is a glimpse into the future. We are working to launch such an experience as early as 2025."Pichai's remarks indicate a delay in the official launch of Astra.In May of this year, Google showcased a prototype of the Astra project at the I/O developer conference, competing with OpenAI's GPT-4o and Sora. Google demonstrated that users can open their camera, and Astra can directly interpret objects in the user's view and even explain code on the screen. Google claimed that Astra would be the most powerful and advanced AI assistant, set to launch later this year.Last weekend, Wall Street News mentioned that the media reported Google is developing an AI that can control computers, taking over users' browsers to help consumers with various daily tasks such as research, purchasing products, or booking flights. It is expected to preview this new AI product as early as December. Based on Pichai's statement, it seems unlikely that this service will be released this year unless it is unrelated to Astra