- Alphabet shares declined approximately 8% upon market opening on Wednesday, following the company’s announcement of third-quarter earnings that fell short of analyst predictions for Google Cloud revenue.
- The absence of revenue from Google Cloud starkly contrasts with Microsoft’s earnings, which demonstrated accelerated growth in its Intelligent Cloud business.
- The company surpassed revenue and earnings per share expectations set by Wall Street.
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On Wednesday morning, Alphabet shares fell nearly 8%, a day after the company’s third-quarter earnings announcement which failed to meet analyst estimates for Google Cloud revenue.
The company exceeded both revenue and earnings per share expectations set by Wall Street. However, its lack of revenue from Google Cloud sharply contrasts with Microsoft’s earnings, which demonstrated accelerated growth in its Intelligent Cloud business. Google reported cloud revenue of $8.41 billion, while Street estimates stood at $8.64 billion.
UBS analysts stated, “The disappointment at Google Cloud contrasts with better-than-expected Azure growth at Microsoft.”
During the investor call, Chief Financial Officer Ruth Porat acknowledged that cloud growth “remains strong across geographies, industries, and products,” but also noted that the expansion rate “reflects the impact of customer optimization efforts,” a phrase typically associated with decreases in spending. This refers to customers with.
Some of those comments have alarmed UBS analysts.
UBS said in a separate note to investors, “GCP’s comments about optimization are disappointing as investors were anticipating cloud players to start optimizing and experience more positive momentum. MSFT also expects optimization to continue throughout this calendar year. This is in line with our AWS estimate reduction last week.”
KeyBank analysts also expressed concern over the results compared to Microsoft’s growth. He stated, “While management acknowledges that Google Cloud Platform (GCP) is growing faster than reported results, we believe limited disclosures are raising concerns that Google may lose stake in Microsoft Azure. Given that we have observed a 1 point acceleration in growth to +28% y/y FX neutral growth.”
Jefferies analysts mentioned that Google Cloud grew by 22%, slower than the 28% growth reported in the second quarter. They added that while interest in generative AI is high, “the industry’s challenge in scaling up AI infrastructure may be a factor slowing down the pace of recognition. We anticipate a greater AI impact in ’24.”
This report includes contributions from CNBC’s Jennifer Elias and Michael Bloom.