Alphabet, the parent company for Google, reported an excellent performance for the third quarter of 2024. The results exceeded analysts' expectations for both earnings per share (EPS) and revenue. They were largely driven by robust growth in the cloud and YouTube segments, with the company's shares alone climbing as much as 6% after the end of regular trading hours[1].* This reflects the fundamental potential that the price respects. However, the valuation is still advantageous among other tech giants, so you should definitely not miss this representative of the big seven in your portfolio.
Key financial indicators
The firm reported earnings per share of $2.12, beating LSEG's $1.85 forecast, while revenue came in at $88.27 billion, beating expectations of $86.30 billion. This shows a year-on-year increase in sales of 15%, which is a significant acceleration compared to the same period last year.
The giant's performance in the third quarter included several notable achievements in its key segments. YouTube's ad revenue came in at $8.92 billion, slightly surpassing the $8.89 billion predicted by analysts. Another standout was the company's cloud division, with Google Cloud revenues totaling $11.35 billion, a figure also well above the $10.88 billion expected and reflecting an impressive 35% growth from $8.41 billion in the previous year. In addition, Alphabet reported a cost of acquiring transportation (TAC) of $13.72 billion, slightly exceeding the expected $13.53 billion. This TAC increase highlights Alphabet's continued investment in acquiring and retaining search traffic, which is a key driver of the company's growth.
Net income also saw a significant jump to $26.3 billion, or $2.12 per share, from $19.7 billion, or $1.55 per share, in the same quarter last year.
Growth drivers
Alphabet's cloud unit was a critical driver of strong revenue data. With cloud revenue up to $11.35 billion – up nearly 35% year-over-year – the company attributed much of this success to its AI offerings, particularly subscription-based solutions for enterprise clients. CEO Sundar Pichai noted that Alphabet's "entire stack" of AI products has expanded across Google's vast user base, creating what he called a "virtuous cycle" of adoption and onboarding. This focus on AI aligns with the broader technology sector's shift toward machine learning and automation, positioning Alphabet favorably for future growth.
Google Search continues to be the largest contributor to Alphabet's revenue, generating $49.4 billion, up 12.3% from the previous year. Chief Financial Officer Anat Ashkenazi highlighted this growth and also that search remains central to the company's revenue stream. Despite increasing competition from other digital platforms, Google's dominance in search remains solid, supported by AI-enhanced features like Google Lens and more personalized search recommendations.
Strategic shifts and investments
Alphabet is also optimizing its operations by integrating AI into workflows and reducing operating costs. Ashkenazi said the company will continue its efforts to reduce costs, particularly in workforce management and physical space optimization, while evaluating ways to redirect capital into more profitable growth opportunities. The initiative aims to balance Alphabet's expansion in high-potential areas such as artificial intelligence and cloud with prudent cost management.
Other segments also showed promising growth. "Other Bets," which includes subsidiaries such as Verily and Waymo, reported revenue of $388 million, up from $297 million a year ago. Waymo, Alphabet's self-driving car division, secured a recent $5.6 billion funding round, enabling the expansion of autonomous taxi services in major U.S. cities such as Los Angeles, San Francisco and Phoenix.
Alphabet's AI and Cloud Dynamics
The company's commitment to developing AI-powered solutions was further reflected in Google Workspace and Google Cloud Platform (GCP). GCP's growth has outpaced the impressive performance of the cloud division as well, reinforcing Alphabet's position as a leading player in the fast-growing AI and cloud markets. Google Lens, another AI-powered tool, now handles more than 20 billion visual searches per month, making it one of Google's fastest-growing products and a popular tool for users in areas such as shopping.
Outlook: Building on Strength
Alphabet's third-quarter earnings underscore the company's resilience and adaptability amid an evolving technology landscape. With its growth-accelerating cloud unit and AI-enhanced products that drive user interaction, Alphabet is strategically positioned for potentially strong expansion. The company's proactive approach to cost management, coupled with the reorganization of its AI teams, demonstrates a balanced strategy, focusing on operational efficiency, while investing in future-ready technologies.
* Past performance is not a guarantee of future results
[1] Alphabet Inc.'s performance over the past five years: https://tradingeconomics.com/goog:us
https://www.cnbc.com/2024/10/29/alphabet-to-report-q3-earnings-after-the-bell.html
