Alphabet beats revenue and profit forecasts on ads and cloud

Bengaluru — Alphabet beat second-quarter revenue and profit estimates on Tuesday, driven by a rise in digital advertising sales and healthy demand for its cloud computing services, but flagged that capital expenses would remain high for the year.

Alphabet’s results underscore robust demand for digital ads, driven by events such as the Paris Olympics and elections in several countries including the US, while a recovery in enterprise spending is boosting its software business.

Strong adoption of generative artificial intelligence technology drove its cloud business.

Advertising sales, Alphabet’s chief revenue source, rose 11% to $64.6bn. The company sells ads in its search product using customer data to better target them.

Net income in the quarter ended June 30 rose 28.6% to $23.6bn, besting the average estimate of $22.9bn.

Investor reaction was mixed, with the shares initially rising about 2% before dipping by a similar percentage. They had gained more than 30% this year, outperforming a 20% rise in tech-heavy Nasdaq composite index.

“This was another stellar quarter from Google with beats across the board,” said Ido Caspi, a research analyst with Global X, citing ad sales and artificial intelligence offerings as drivers.

Total revenue grew 14% to $84.74bn, compared with analysts’ consensus estimate of $84.19bn according to LSEG data. Ad sales in its YouTube division rose 13% to $8.67bn.

Revenue from cloud computing services, a widely watched barometer for the health of enterprise technology spending, rose 28.8% to $10.35bn. Analysts had expected $10.16bn.

Expenditure jumped

Alphabet reported capital expenditures of $13bn in the June quarter. Ruth Porat, in her last conference call as Alphabet’s CFO, told investors that quarterly capital expenditures for the rest of 2024 would be at or above $12bn.

In the January-March period, the company’s capital expenditure had jumped 91% to $12bn, spooking investors.

Like its competitors, Alphabet is racing to roll out AI offerings as investors continue to pour billions into the technology. But its AI searches have produced a series of

embarrassing results, such as the widely ridiculed suggestion to put glue on pizza to better hold cheese. Google pulled back on the technology in May to work out kinks.

The technology will be rolled out to more countries, Alphabet CEO Sundar Pichai told investors on a call on Tuesday. “You’ll see us expand the use cases around it.”

Pichai, without providing a timeline, said AI products could soon drive revenue rather than just help companies through cost-cutting and greater efficiency.

Despite heightened regulatory scrutiny, Google had been pursuing its largest acquisition yet, an about $23bn buyout of cybersecurity firm Wiz. But Wiz told employees on Monday it was walking away from the deal and would instead pursue going public.

Google also held talks to acquire customer relationship management firm HubSpot before walking away from it earlier this month. The deal would have turned Alphabet into a rival of Salesforce, Oracle and others in that market.

Google said on Monday it was planning to keep the backtracking function of third-party cookies in its Chrome browser after years of pledging to phase out the tiny packets of code used to track internet searches.

It marked a major reversal after advertisers expressed concerns that the loss of cookies would limit their ability to collect and parse information for personalising ads, making them dependent on Google’s user databases.

Sales for the Mountain View, California, company’s so-called “other bets”, including experimental projects and its self-driving car unit, Waymo, rose 28% to $365m. Porat said the company was planning a multiyear $5bn investment in Waymo, as rival Cruise slowly maps a course back to US roads after a highly publicised accident in October.

Reuters