The cloud division of Alphabet, Google’s parent company, misses revenue estimates, as Microsoft’s cloud booms

Oct 24 (Reuters) – Google Inc Alphabet Inc’s (GOOGL.O) cloud business crawled to its slowest pace in at least 11 quarters, sending the company’s stock down 5.7% after hours, even as sales at Microsoft’s rival cloud unit (MSFT.O). I flourished.

Google’s stock price decline despite beating Wall Street estimates for earnings and sales shows how much investors want the company to make gains in artificial intelligence, and shows that its cloud business is still competitive against Microsoft’s more powerful Azure and Amazon.com’s AWS.

Fears of a slowing global economy prompted companies to limit spending on cloud-related services, including expensive AI tools, slowing revenue growth at Google’s cloud unit to 22.5% in the third quarter, from 28% in the three-month period. Previous. .

Google Cloud’s third-quarter revenue rose 22.5% to $8.41 billion, the slowest growth since at least the first quarter of 2021. The cloud unit reported operating income of $266 million, compared to an operating loss of $440 million a year ago. Wall Street expected cloud computing revenues to reach $8.62 billion.

Cloud growth in the third quarter was due to “customer improvement efforts,” Chief Financial Officer Ruth Porat said on a conference call Tuesday, without elaborating.

By contrast, revenue from Microsoft’s Intelligent Cloud unit, which includes the Azure cloud computing platform, rose to $24.3 billion, compared to analyst estimates of $23.49 billion, LSEG data showed. Azure revenue rose 29%, higher than the 26.2% growth estimate from market research firm Visible Alpha. Microsoft shares rose 5% after hours.

“Although Alphabet tops quarterly earnings and revenue estimates, investors were disappointed by relatively weak performance in Google’s cloud platform, which is at risk of falling further behind Azure and AWS,” Investing.com senior analyst Jesse Cohen said.

While ad spending was strong in some sectors such as retail and travel, industry executives and analysts noted a decline in budgets in some areas, impacting Alphabet’s main source of revenue.

The company recorded advertising revenues of $59.65 billion in the third quarter, compared to $54.48 billion in the previous year. Analysts on average were expecting revenue of $59.12 billion from its advertising business. Within the company’s advertising segment, YouTube ads generated revenue of $7.95 billion compared to $7.07 billion last year.

Alphabet reported net profits of $19.69 billion in the July-September period. Compared to $13.91 billion a year ago.

Revenue for the quarter ended Sept. 30 was $76.69 billion, compared to estimates of $75.97 billion, according to LSEG data.

Google said it spent $8.06 billion on capital expenditures in the third quarter, which was “overwhelmingly” a result of investments in its technology infrastructure. Porat said servers were the largest item, followed by data centers due to the significant increase in AI computing investments.

Alphabet Inc laid off nearly 12,000 employees earlier this year, or about 6% of its global workforce, in an attempt to reduce headcount amid a “different economic reality.” The company also laid off employees from its global recruiting team in September.

The company revealed that it recorded end-of-service compensation and related expenses worth $2.1 billion for the first nine months of the year.

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