Google parent Alphabet isn’t sweating the state of online advertising. The tech behemoth notched $74.6 billion in second-quarter revenue, up 7% over last year, as the ad market bounces back from a post-pandemic slowdown. Executives cited a strong showing from Google’s core search engine business and video platform YouTube. Revenue from Google’s cloud business also came in slightly hotter than expected, growing 28% as Google looks to bundle cloud services with new toolspowered by generative artificial intelligence.
- Ruth Porat, Google’s chief financial officer of eight years, will move into a new role as president and CIO of Alphabet in September.
By Saundra Latham, Editor at LinkedIn News
Alphabet profit beats expectations, CFO Porat to assume new role
Alphabet’s results were helped by steady demand for its cloud services and a rebound in advertising. The shares jumped 8% in after-hours trading. Shares of rival Microsoft (MSFT.O) were down slightly after it also reported results on Tuesday, while shares of Meta Platforms (META.O), a company also highly dependent on ad sales, rose as much as 2%.
He added, “Google has finally consolidated itself as a leading force in the highly-disputed cloud sector and now has room to focus its expansion in the AI field.”
Porat was hired from Morgan Stanley (MS.N), where she was finance chief. In her new role, she will oversee the company’s so-called Other Bets portfolio, the unit for more risky hardware and services ventures, as well as help manage the company’s global investments.
But Alphabet’s second-quarter results are sure to please investors concerned over a broader advertiser pullback following the meteoric growth of Web services during the pandemic, as consumers returned to physical retail.
Silicon Valley has been buzzing over generative artificial intelligence software that can give long-winded responses to user queries and is predicted to be the next leap forward for Big Tech. Alphabet rolled out AI products at its annual I/O developer conference in May and it revamped its search engine to include generative AI.
The new AI technology comes at a cost: the largest component of Alphabet’s second-quarter capital spending was for servers and a “meaningful investment” in AI computing, Porat said in a conference call.
Advertising is coming to the company’s revamped search, Chief Executive Sundar Pichai told analysts on the call. Alphabet is testing what formats are effective and where to place ads inside of its AI-powered search.
Presently, 80% of advertisers use at least one AI-driven search product, Chief Business Officer Philipp Schindler said on the call.
The company plans to integrate generative AI into other products such as Gmail, Google Photos and its Android mobile operating system. Generative AI tech can create text, images and video that resemble what people produce.
Still, the results released on Tuesday show that ad sales are still king. Investors punished social media company Snap (SNAP.N) on Tuesday for its disappointing ad sales in the quarter.
Revenue at Google Cloud, which is among the biggest cloud service providers, rose 28% to $8.1 billion, besting expectations of $7.75 billion, and maintaining roughly the same rate of growth as the first quarter. Microsoft’s Azure revenue rose 26%, ahead of the growth estimate from Visible Alpha.
Analysts and industry experts have said they expect cloud business growth to pick up toward the end of the year, with quarter-ended June being the trough as macro uncertainty begins to clear.
Investors expect AI to become a major growth driver for cloud businesses within a year, with Microsoft’s Azure leading the pack followed by Amazon.com’s (AMZN.O) AWS and Google Cloud.
Ad sales for Google’s YouTube video service unit rose 4.4% to $7.67 billion.
Alphabet reported net profit of $1.44 per share for the April-June period, compared with estimates of $1.34 per share.
Revenue for the quarter stood at $74.6 billion, compared with estimates of $72.82 billion, according to Refinitiv data.
