Alphabet revenue boosted by cloud computing and search ads

(Bloomberg) — Google parent Alphabet Inc. reported second-quarter revenue that beat analysts’ expectations, driven by demand for cloud computing services and advertising on its search engine.

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Sales, excluding payments to partners, were $71.36 billion in the second quarter, the company said Tuesday in a statement. Analysts were projecting US$70.7 billion, according to data compiled by Bloomberg. Net income was $1.89 per share, compared to Wall Street’s estimate of $1.84 per share.

Google once had a head start in the AI ​​race because it developed much of the technology that underpins popular chatbots. Now the company aims to prove it can withstand competition from companies like OpenAI and Microsoft Corp. that are trying to steer people away from traditional web searching by promoting chatbots that can answer users’ questions in a conversational way. Google has rushed to incorporate artificial intelligence into all of its widely used products, including Gmail, Google Docs and search, with occasionally mixed results.

It also provides cloud computing services to fast-growing startups, generating consistent profitability for that business after years of losing money.

“We have certainly seen the benefit of our strength in AI, AI infrastructure, as well as generative AI solutions for cloud customers,” said Ruth Porat, chief investment officer at Alphabet, in a conference call with the media. “There is no doubt that customers are turning to us as they develop their capabilities.”

After initially fluctuating, Alphabet shares rose about 1% in extended trading following the report. Shares are up 30% so far this year.

Google Cloud posted a profit of $1.17 billion, beating analysts’ estimates of operating profit of $982 million. Google still trails Amazon.com Inc. and Microsoft in the cloud computing market, but last year the unit attracted business from artificial intelligence startups. Investors are also eyeing Google Cloud as the unit with the most potential for Alphabet’s overall growth, especially as its search business matures.

Quarterly search advertising revenue was $48.5 billion, compared to analysts’ average projection of $47.6 billion.

YouTube reported revenue of $8.66 billion, compared to analysts’ average estimate of $8.95 billion. Of Alphabet’s various businesses, YouTube has been the most vulnerable to swings in the digital ad market.

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Alphabet’s Other Bets — a collection of lunar units that includes life sciences business Verily and self-driving car effort Waymo — generated $365 million in revenue while posting an operating loss of $1.13 billion. That was steeper than analysts’ projection of a $1.07 billion loss. Alphabet has recently been pressing its bets to transform into independent startups rather than becoming business units of its parent company.

In its latest report, Alphabet indicated that it has $100.7 billion in cash, equivalents and tradable investments, down from the $108 billion reported in the first quarter. In recent months, Google has expressed interest in acquiring two companies, either of which would have been the biggest purchase ever for the internet giant – but both times the deals fell through. The acquisitions, for HubSpot Inc. and Wiz Inc., would have strengthened the company’s cloud and cybersecurity offerings, helping it compete with its technology rivals.

“We are always looking for good opportunities to diversify the portfolio and will continue to do so if we find the right combination of factors, including value,” Porat said, without commenting on Wiz’s trades. “Regulatory scrutiny is nothing new to us and we have successfully managed regulatory reviews of many large businesses in the past.”

Later this month, veteran Eli Lilly & Co. executive Anat Ashkenazi will join the search giant as chief financial officer. Porat, Alphabet’s longest-serving CFO, will remain president and chief investment officer, spending more time working on the company’s portfolio of other bets.

–With assistance from Ed Ludlow.

(Updates with segment results)

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