Alphabet’s Cloud Division Falls Short in Revenue Amidst Microsoft’s Cloud Surge

Highlights

• Alphabet’s cloud division faces slowest growth in over 11 quarters, causing a 5.7% stock drop in after-hours trading.
• Microsoft’s cloud unit, led by Azure, experiences substantial expansion, outpacing expectations.
• Global economic downturn leads to reduced spending on cloud services, affecting Google’s cloud revenue growth.
• Google Cloud’s Q3 revenue reaches $8.41 billion, marking its slowest growth since Q1 2021.
• Microsoft’s Intelligent Cloud unit reports $24.3 billion in revenue, surpassing estimates; Azure revenue grows by 29%.
• Analysts disappointed with Google Cloud Platform performance, as Azure and AWS continue to dominate.
• Advertising revenue grows, with YouTube ads generating $7.95 billion, surpassing last year’s $7.07 billion.
• Alphabet reports a net profit of $19.69 billion, up from $13.91 billion in the previous year.
• Google allocates $8.06 billion for capital expenses, focusing on technical infrastructure investments.
• Alphabet implements layoffs affecting 6% of its global workforce, citing changing economic conditions. Severance charges total $2.1 billion for the first nine months of the year.

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In a recent development, Google-parent company Alphabet recently faced a setback when its cloud business posted its weakest performance since over 11 quarters, leading to a 5.7% decrease in after-hours trading of its stock value. Meanwhile, rival Microsoft saw significant expansion for their cloud division.

Although Google exceeded Wall Street estimates in terms of profits and sales, its stock price continues to slide, signalling an increasing need to demonstrate advances in artificial intelligence as well as compete with Microsoft Azure and Amazon Web Services (AWS).

One key contributor to Google‘s cloud revenue decrease is the global economic downturn, prompting companies to reduce spending on cloud services such as costly AI tools. Revenue growth for their cloud unit slowed to 22.5% from 28% during its previous three months of operation.

Google Cloud saw its third-quarter revenue grow 22.5% year-on-year to $8.41 billion – marking its slowest annual revenue increase since at least the first quarter of 2021. Notably, its operating income reached $266 million, marking a dramatic improvement from last year’s $440 million operating loss; yet Wall Street expected an $8.62 billion computing revenue.

Ruth Porat, Finance Chief for Amazon Web Services (AWS), attributed third-quarter cloud growth to customer optimization efforts; however, more details were not shared during a conference call.

Microsoft‘s Intelligent Cloud unit, comprising Azure cloud computing platform, reported revenue of $24.3 billion – surpassing analysts’ estimates of $23.49 billion and outpacing Visible Alpha’s 26.2% growth estimate projected. Azure revenue experienced 29% growth which outstripped Visible Alpha estimates projected growth of 26.2%; consequently, Microsoft shares saw an unexpected 5% surge during after-hours trading.

Jesse Cohen, senior analyst for Investing.com, expressed disappointment over Google Cloud Platform performance, with Azure and AWS continuing to lead in cloud platform capabilities.

Alphabet‘s primary source of revenue, retail and travel advertising expenditure has seen significant increases while there has been a reduction in budgetary allocation elsewhere, impacting Alphabet.

Alphabet‘s advertising segment posted revenue of $59.65 billion for the third quarter, an increase from the $54.48 billion reported during 2016. YouTube ads generated $7.95 billion versus only $7.07 billion last year. These results exceeded analysts’ estimates.

Alphabet announced a net profit of $19.69 billion for the July-Sept period, an impressive increase from its prior year’s $13.91 billion profit. Revenue for this quarter ended September 30 was also slightly above expected estimates at $76.69 billion.

Google recently reported allocating $8.06 billion for capital expenses during the third quarter, driven mainly by investments in technical infrastructure – particularly servers and data centers due to an upsurge in investments for AI computing investments.

Alphabet recently initiated layoffs affecting approximately 12,000 employees – or roughly 6% of its global workforce – as an immediate reaction to changing economic conditions. Furthermore, they cut their global recruiting team in September. Severance charges totalled an impressive $2.1 billion during the first nine months.