The News: Alphabet, the parent company of Google, announced Q3 earnings earlier this week, and the results highlighted strong growth in its advertising, search, and cloud businesses.
The full earnings press release is available on the Alphabet website.
By the numbers:
- Earnings: $1.55 per share, diluted, beating the $1.45 per share estimate by LSEG
- Revenue: $76.69 billion, beating the $75.77 billion estimate by LSEG
The company also reported the following figures:
- YouTube ads: $7.95 billion, beating the $7.81 billion estimate by StreetAccount
- Google Cloud: $8.41 billion, missing the $8.64 billion estimate by StreetAccount but increasing 22% on a year-over-year (YoY) basis
- Traffic acquisition costs: $12.64 billion, beating the $11.83 billion estimate by StreetAccount
- Q3 revenue rose 11% to $76.69 billion from $69.09 billion compared with Q3 2022
Alphabet’s Strong Q3 Earnings Driven by Growth
Analyst Take: Alphabet, the parent company of Google, posted strong Q3 earnings this week, besting analysts’ estimates across several business units, including advertising, search, and services. Though cloud revenue fell short of analyst estimates, it nonetheless rose 22% on a YoY basis. Overall, the company’s strong Q3 performance, marked by revenue growth of 11% and earnings per share (EPS) of $1.55 underscores the company’s continued strength amid economic headwinds.
Google Service, Search, and Advertising
Google’s overall services business generated $67.99 billion in revenue during the quarter, up from $61.38 billion a year ago, driven by strong revenue growth across its search and advertising business units. Google’s advertising business generated quarterly revenue of $59.6 billion, up from $54.5 billion in the prior year, led by “solid” growth in the retail vertical, and besting analysts’ consensus estimates of $58.9 billion. Google Search and other revenue reached $44 billion during the quarter, up from $39.54 billion a year ago, making it the largest contributor to revenue growth during the quarter.
A key bright spot for the company was the performance of YouTube ads, which posted $7.9 billion in revenue, up roughly 12% YoY, driven by growth in both brand and direct response, according to the company. This news is particularly encouraging for the company given the challenging economic environment and intense competition from other platforms, including TikTok. Underscoring the momentum seen on its platform, Alphabet CEO Sundar Pichai noted on the earnings call that YouTube Shorts now has 70 billion daily views, up from the more than 50 billion daily views at the beginning of the year.
Subscription Products
Pichai also highlighted the strength with the company’s subscription products, including YouTube and NFL Sunday Ticket. YouTube saw momentum in both its ads and subscription businesses in Q3, according to Pinchai. The company’s NFL Sunday Ticket is generating positive feedback on new features, such as the multiview feature and live stream reliability, which Pinchai said is a “clear example of our ability to execute big partnerships with excellence and at scale.”
Google Cloud
Although Google’s cloud business revenue reached $8.41 billion, it missed analysts’ consensus estimates by more than $20 million. However, cloud still grew 22% from a year earlier, double the revenue growth for the company, and significantly, the unit posted operating profit of $266 million, rebounding after losing $440 million in the same period a year earlier.
We expect that as the company continues to invest in its generative AI offerings across its entire portfolio, additional cloud spending will follow. Google continues to invest in its AI solutions, including infrastructure and services such as Vertex AI and Duet, which are gaining traction in the market among organizations seeking to deploy generative AI across a wide range of use cases.
Looking Ahead
Alphabet’s 2023 strong earnings results were perhaps overshadowed by the company’s miss on cloud revenue, which are a key driver of the company’s overall trajectory and success. That said, the company posted strong results across many of its other business segments amid challenging headwinds, and is demonstrating an ability to bring innovative products to market, such as Shorts and NFL Sunday Ticket, which are creating unique and sticky experiences for customers.
On the cloud front, we believe that the company’s continued focus on AI solutions should help drive additional revenue growth in this segment, particularly as generative AI use cases become table stakes across both business and consumer applications. Organizations that can provide a seamless and responsible integration of generative AI tools will be well positioned to capture additional revenue.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
Adults in the Generative AI Rumpus Room: Google, Tidalflow, Lakera
Google to Defend Gen AI Users from Copyright Claims
Alphabet’s Impressive Q2 Results Surpass Expectations, Driven by Advertising and Cloud Growth
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Keith Kirkpatrick is VP & Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
