Companies
25/10/2023

Microsoft's Cloud Business Is Growing While Google Parent Alphabet's Cloud Division Falls Short Of Revenue Projections




Even while sales at rival Microsoft's cloud division surged, Alphabet, the parent company of Google, saw its cloud business grind to a halt for the first time in at least 11 quarters, sending the stock down 5.7% after hours.
 
The decline in Google's stock price, even though the company exceeded Wall Street forecasts for earnings and revenue, demonstrates the extent to which investors expect the company to make progress in artificial intelligence and the resilience of the cloud computing industry versus Microsoft's Azure and Amazon.com's AWS.
 
Companies have reduced spending on cloud-related services, notably costly AI tools, due to fears of a deteriorating global economy. As a result, revenue growth at Google's cloud segment dropped to 22.5% in the third quarter from 28% in the previous three months.
 
The third quarter of 2021 saw the weakest growth in Google Cloud revenue since at least the first quarter, with a 22.5% increase to $8.41 billion. In contrast to an operating loss of $440 million a year earlier, the cloud unit posted an operating income of $266 million. Wall Street anticipated $8.62 billion in cloud computing sales.
 
The third-quarter cloud rise is attributed to "customer optimisation efforts," according to Finance Chief Ruth Porat, during a conference call on Tuesday. She did not provide further details.
 
In contrast, LSEG data revealed that Microsoft's Intelligent Cloud division, which is home to the Azure cloud computing platform, saw revenue increase to $24.3 billion from analysts' projected $23.49 billion. Compared to a 26.2% growth prediction from market research firm Visible Alpha, Azure sales increased by 29%. After hours, Microsoft shares increased by 5%.
 
"Despite Alphabet topping quarterly earnings and revenue estimates, investors were disappointed by the relatively weak performance at its Google cloud platform, which is at risk of falling further behind Azure and AWS," Investing.com senior analyst Jesse Cohen.
 
Although spending on advertising has been robust in several industries, like travel and retail, industry executives and analysts have observed a reduction in budgets in certain areas, which has an impact on Alphabet's primary revenue stream.
 
In the third quarter, the company's ad revenue was $59.65 billion, up from $54.48 billion in the same period last year. The average revenue expectation of analysts for its advertising business was $59.12 billion. YouTube commercials generated $7.95 billion in revenue for the company's advertising division, up from $7.07 billion the previous year.
 
For the July–September period, Alphabet recorded a net profit of $19.69 billion, up from $13.91 billion in the same period last year.
 
LSEG data shows that revenue for the quarter ended September 30 was $76.69 billion, below projections of $75.97 billion.
 
According to Google, the majority of the $8.06 billion it spent on capital expenses in the third quarter came from upgrades to its technical infrastructure. According to Porat, the greatest component was servers, which were followed by data centres as a result of a notable increase in investments in AI computing.
 
More than 12,000 workers, or around 6% of Alphabet's global workforce, were let go earlier this year as part of a staff reduction drive motivated by a "different economic reality." In September, the business also let go of staff members from its international hiring division.
 
The business revealed that for the first nine months of the year, it incurred $2.1 billion in severance and related expenditures.
 
(Source:www.theprint.in) 

Christopher J. Mitchell
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