Google Alphabet Shares Rise by 6% as Q3 Earnings Exceed Analyst Expectations
Google’s parent company, Alphabet shares rose by close to 6% on October 29, 2024 after the company reported higher earnings than expected. Alphabet announced a 15% revenue growth in quarter three.
According to CNBC, Google Alphabet’s strong earnings paved the way for earnings announcements from big tech companies. Microsoft and Meta are expected to release their quarter three results on Wednesday, October 30. Amazon and Apple are set to release theirs on Thursday, October 31, 2024.
Driving Revenue with AI
Google Alphabet CEO Sundar Pichai placed AI at the center of Google’s earnings when he informed investors that Google’s AI products are now operating at scale and in use by billions of people across the globe. Pichai noted that Google’s AI portfolio is attracting new customers and larger deals.
“This business has real momentum, and the overall opportunity is increasing as customers embrace generative AI,” he said.
Pichai also underscored the role of expanded AI tools in improving the user experience for search. Google AI Overview, for instance, offers users concise answers to queries. The company says the AI tool currently reaches a billion users monthly.
“People are asking longer and more complex questions and exploring a wider range of websites. What’s particularly exciting is that this growth actually increases over time as people learn that Google can answer more of their questions,” he added.
Google will continue to spend more on AI. Anat Ashkenazi, Google’s new Chief Financial Officer said the search giant’s capital expenditure will be higher in 2025 than it has been this year. Google’s Chief Business Officer Philipp Schindler said the company is already using AI to improve YouTube recommendations. Using Google’s AI model Gemini, YouTube now recommends relevant, personalized, and fresh content to viewers.
This was reflected in YouTube ad revenue, which stood at $8.92 billion this quarter, up from $8.89 billion in the same quarter last year. Despite this growth, analysts suggest that Google’s ad revenue may start declining in the coming years.
“I completely expect Google to start losing share in the ad market over the next two to three years. Clearly, as we kind of move towards more of an AI-driven market, there’s going to be increasing competitive pressures out there as a result,” Senior Equity Analyst at CFRA Research, Angelo Zino said.
YouTube faces fierce competition from other advertising platforms like Amazon, TikTok, and Netflix.
Key Revenue Streams
Google’s search business remained the one of the biggest revenue generators for the tech giant despite the illegal monopoly ruling issued by a US judge earlier this year. Earnings from this unit generated revenues amounting to $49.4 billion for the tech giant, 12.3% more than the amount it generated a year ago.
Google’s cloud business also registered significant revenue growth this quarter. Google reported that its cloud revenue rose by about 35% to hit the $11.35 billion mark, up from $8.41 billion recorded a year ago.
“Cloud growth was strong, which continues to support the argument that the major cloud providers are well-placed to benefit from the AI revolution,” Senior Equity Analyst at Hargreaves Lansdown, Matt Britzman said.
Chief Financial Officer Ashkenazi attributed the increase in Alphabet’s cloud revenue to Google Workspace growth. Google Workspace is the cloud computing and productivity suite owned by the search giant.
The advertising business continued to grow this quarter, raking in $65.85 billion for the search giant compared to $59.65 billion it generated a year ago. Though the pace of growth seems slower, it is commendable considering that the ad tech trials the search giant has been facing in recent months.
Revenue from Google Alphabet’s Investments
Alphabet reported revenues amounting to $388 million from its self-driving vehicle unit, Waymo and life sciences unit, Verily. In July 2024, Alphabet announced a $5 billion investment into Waymo to enable the unit to continue building its brand as a global leader in self-driving cars.
The unit raised an additional $5.6 billion in a funding round last week to expand its robo taxis service in more cities, including Phoenix, San Francisco, and Los Angeles.
Overall, Alphabet’s total earnings for the July – September quarter stood at $88.27 compared to the $86.30 billion recorded in the same quarter last year. The company’s net income hit the $26.3 billion mark, up from the $19.7 billion recorded in the same quarter last year. Alphabet’s earnings per share also increased from $1.85 in quarter three of last year to $2.12.
