Photo Credit: Photo Mix from Pixabay
 

Alphabet aka Google (Nasdaq: GOOG) recently reported its third quarter results that surpassed market expectations. Like Meta, Google is also benefiting from a rebound in digital advertising spend. Despite the growth, the market was not too pleased with the outlook that the company provided, sending its stock falling 7% in the extended trading session.
 

Alphabet’s Financials

Alphabet’s third quarter revenues grew 11% to $76.69 billion, ahead of the market’s forecast of $75.97 billion. Net income grew from $13.9 billion last year to $19.7 billion. Adjusted earnings were $1.55 per share, again surpassing the market’s forecast of $1.45 for the quarter.

Revenue from YouTube advertising was $7.95 billion compared with the market’s estimate of $7.81 billion. Google Cloud revenue was $8.41 billion, falling short of the market’s estimates of $8.64 billion. While the cloud segment failed to meet market expectations, it still grew 22% and had an operating profit of $266 million after losing $440 million last year. Traffic acquisition costs of $12.64 billion were almost in line with the market’s estimate of $12.65 billion.

Overall advertising revenues were $59.65 billion compared with $54.48 billion a year ago. Revenue from Other Bets, which includes Waymo and the Verily life sciences unit, was $297 million, compared with $208 million last year. However, the company continued to report losses, and ended the quarter with a loss of $1.19 billion, compared with $1.23 billion a year ago.

Google did not provide an outlook for the current quarter. The market is looking for an EPS of $1.60 on revenues of $70.48 billion for the coming quarter and EPS of $5.73 on revenues of $254.43 billion for the current fiscal year.
 

Google’s Growth Focus

Google is focused on four key areas within generative AI for its products. First, improving knowledge and learning. The focus includes work with the Search Generative Experience where it is experimenting to bring Generative AI capabilities into Search. It has added several new capabilities within search such as incorporating videos and images into responses and generating imagery. In August, it expanded the availability of AI-based search to India and Japan with plans to extend the feature in other countries and languages in the coming months. As it adds features and expand into new markets, Google is also engaging with the broader ecosystem so that it can serve a wider range of information needs and answer new types of questions.

On the second focus area of improving creativity and productivity, Bard’s direct interface to a conversational LLM will act as a complementary experience to Google Search. Bard can now integrate with Google apps and services, showing relevant information from Workspace, Maps, YouTube, and Google Flights and Hotels. Recently, Google announced Assistant with Bard, a personal assistant powered by Generative AI that integrates Bard’s generative and reasoning capabilities with Assistant’s personalized help.

Third, it is enabling developers, businesses, and other organizations to build their own transformative products and services. And fourth, it is building and deploying AI responsibly especially to allow people to easily identify when they are encountering AI-generated content online through new technology powered by Google DeepMind SynthID.

Google is also expanding the AI use case beyond traditional search and advertising. Duet AI, its AI offering for Google Workspaces was launched in May this year has been created using Google’s large foundation models and especially trained to help users to be more productive on Google Cloud. It continues to expand its capabilities and is integrating it across a wide range of cloud products and services. Duet AI is helping leading brands like PayPal and Deutsche Bank boost developer productivity. It is also enabling retailers like Aritzia and Gymshark to deliver faster business results by leveraging new insights that are provided Duet AI’s analysis of data.

Within Workspace, Duet AI is helping organizations write and refine content in Gmail and Docs, creating original images from text within slides, organizing data in Sheets and more such use cases. These innovations are helping Google provide new services and grow its base of 10 million paying customers. It has also integrated Duet AI across its cybersecurity portfolio to provide Generative AI-powered assistance in Mandiant Threat Intelligence, Chronicle Security Operations, and Security Command Center. This makes the security teams more efficient. Google believes that they are the only leading security provider that currently integrates frontline intelligence and expertise, a security operations platform, and a cloud foundation, all with Generative AI.

Google’s stock is trading at $131.45 with a market capitalization of $1.64 trillion. It hit a 52-week high of $142.38 last month, and a 52-week low of $85.57 in January.

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