Alphabet beats on top and bottom lines, boosted by cloud revenue

Google parent Alphabet reported third-quarter earnings that beat on top and bottom lines with strong revenue growth from the company’s cloud unit.

The company’s shares rose 4% in after-hours trading.

Here are the results:

• Earnings per share: $2.12 vs $1.85 expected by LSEG
• Revenue: $88.27 billion vs $86.30 billion expected by LSEG

Here are other numbers Wall Street was watching:

• YouTube advertising revenue: $8.92 billion vs. $8.89 billion, according to StreetAccount
• Google Cloud revenue: $11.35 billion vs. $10.88 billion, according to StreetAccount
• Traffic acquisition costs (TAC): $13.72 billion vs. $13.53 billion, according to StreetAccount

Alphabet’s revenue grew 15% year over year, which is stronger than the same quarter last year.

The company reported blow-out cloud revenue at $11.35 billion, up nearly 35% from the $8.41 billion a year ago. The company attributed its strong cloud results to their AI offerings, which includes subscriptions for enterprise customers.

Alphabet CEO Sundar Pichai opened his call with investors saying the company’s “full-stack” of AI products are now operating at scale and being used by Google’s billions of users, “creating a virtuous cycle.”

The search company’s strong quarter kicks off a big week of earnings for tech’s mega-cap companies. Meta and Microsoft report on Wednesday followed by Apple and Amazon on Thursday.

Google’s search business generated $49.4 billion in revenue. That was up 12.3% from a year ago, and the search business remains the largest contributor to revenue growth for the company, said Alphabet Chief Financial Officer Anat Ashkenazi.

The company reported advertising revenue of $65.85 billion. That was up from $59.65 billion a year ago, showing that Google’s advertising business continues to grow, though at a slower pace than in the second quarter.

YouTube ad revenue just beat analysts’ expectations, showing better growth than last quarter. The Google-owned company faces increased pressure from other advertiser options such as Netflix, TikTok and Amazon.

AI is improving YouTube recommendations, Chief Business Officer Philipp Schindler said on the call with investors. The company’s AI language model Gemini has given YouTube the ability to “recommend more relevant, fresher and personalized content to the viewer.”

Alphabet’s net income increased to $26.3 billion, or $2.12 per share, compared to $19.7 billion, or $1.55 per share, in the year-ago quarter.

Other Bets, which includes the company’s life sciences unit Verily and self-driving car unit Waymo, reported revenue of $388 million in the third quarter. That’s up from $297 million a year ago.

Last week, Waymo closed a $5.6 billion funding round to expand its robotaxi service in Los Angeles, San Francisco and Phoenix and to more cities.

Google Lens, the company’s image recognition product that uses mobile cameras and photos, is now used for over 20 billion visual searches per month, Pichai said. It’s one of the fastest growing search products and is used often for shopping, he added.

Alphabet’s third quarter was filled with shake-ups externally and internally, including at its most senior ranks and its most important business.

Earlier this month, the company replaced Prabhakar Raghavan, the company’s search and ads boss since 2018, with Nick Fox, a longtime executive known for his role in Google’s Assistant unit. Additionally, the team working on the Gemini app, which includes the company’s artificial intelligence direct-to-consumer products, will join Google DeepMind under head Demis Hassabis.

The company on Tuesday announced that it is evaluating how this reorganization will affect its segment operating results.