Google cloud revenues fall short as Microsoft gains

Both posted quarterly earnings that beat analysts' estimates

Tue, 24 Oct, 2023 - 21:49

Heavyweights Google and Microsoft both posted quarterly earnings that beat analysts' estimates, however investors will have to wait to see whether Big Tech can continue to deliver for the stock markets.

Google-parent Alphabet's third-quarter revenue beat Wall Street expectations, helped by a rise in advertising spending and resilient demand for cloud services due to increasing adoption of artificial intelligence tools.

Revenue for the quarter to the end of September stood at $76.69bn (€72.48bn), compared with estimates of $75.97bn.

However, its cloud division missed estimates for third-quarter revenue as an uncertain economy and high interest rates forced companies to trim their budgets.

Shares of the Google parent fell more than 4% in extended trading.

Fears of a slowing global economy have forced companies to curb spending on cloud-related services including expensive artificial intelligence tools, which has caused revenue growth at Google's cloud unit to slow to 22.5% in the third quarter, from 28% in the prior three-month period.

While advertising spending has been strong in some sectors such as retail and travel, industry executives and analysts have noted a pullback in budgets in some areas, affecting Alphabet's major source of revenue.

Alphabet reported a net profit of $19.69bn for the July to September period, compared with $13.91bn a year earlier.

Meanwhile, Microsoft beat Wall Street estimates for first-quarter revenue, driven by growth in its cloud computing and office software businesses.

The company's revenue rose 13% to $56.5bn in the quarter ended September, compared with analysts' consensus estimate of $54.52bn.

Shares in Microsoft gained nearly 6% in after-market trading.

Revenue from Microsoft's Intelligent Cloud unit, which houses the Azure cloud computing platform, grew to $24.3bn, compared with analysts' estimate of $23.49bn.

Separately, Snap forecast fourth-quarter revenue largely above estimates after posting better-than-expected revenue and user growth for the latest three months as efforts to revamp the ad targeting tools of its photo messaging app paid off.

Shares of the company were up 14% in extended trading.

The results are welcome news for the Snapchat owner after its problems in rolling out a new machine learning-powered technology for better targeting of ads and promotions hampered its growth in the first half of the year.

They also signal that advertisers were returning to smaller platforms such as Snapchat after leaning on the likes of Facebook-owner Meta Platforms, whose wider reach and a diverse user base are considered a safer bet in a turbulent economy.

The Santa Monica, California-based company said it expected fourth-quarter revenue to be between $1.32bn to $1.38bn.

Analysts were expecting revenue of $1.33bn.

The company, however, expects muted spending from a large number of brand-oriented advertising campaigns following the onset of the war in the Middle East as a risk to its sales in the fourth quarter.