Google’s Cloud Business Falls Behind Microsoft’s Azure as Revenue Misses Estimates
Google’s Cloud Business Struggles Amid Microsoft’s Success
Google-parent Alphabet’s cloud division, despite beating profit and sales estimates, experienced its slowest growth in 10 quarters. This disappointing performance caused the company’s stock to drop by 5.7% after hours. Meanwhile, Microsoft’s cloud unit, Azure, thrived, leading to a 5% increase in the company’s shares.
Fears of a Slowing Global Economy Impact Google’s Cloud Unit
Global economic concerns have led companies to reduce spending on cloud-related services, including costly AI tools. As a result, Google’s cloud unit experienced a decrease in revenue growth, with only 22.5% growth in the third quarter compared to the previous three months’ 28%. The slowest growth since at least the first quarter of 2021.
- Google Cloud third-quarter revenue rose 22.5% to $8.41 billion.
- Google Cloud reported an operating income of $266 million, compared to an operating loss of $440 million a year ago.
- Wall Street expected cloud computing revenue of $8.62 billion.
Microsoft’s Azure Outperforms Google’s Cloud Unit
Contrasting Google’s cloud struggles, Microsoft’s Intelligent Cloud unit, housing the Azure cloud computing platform, experienced remarkable growth. Azure revenue rose by 29%, surpassing market research firm Visible Alpha’s growth estimate of 26.2%. Microsoft’s Intelligent Cloud unit generated $24.3 billion in revenue, exceeding analysts’ estimate of $23.49 billion.
Investors Disappointed in Google’s Cloud Performance
Despite surpassing quarterly earnings and revenue estimates, Alphabet’s Google cloud platform disappointed investors. The underperformance raises concerns about the platform falling further behind Azure and Amazon Web Services (AWS). Analysts attribute this disappointment to investors’ high expectations for gains in artificial intelligence and the need for Google to remain competitive in the cloud business.
Advertising Revenue Remains Strong, but Some Sectors Cut Back
While advertising spending remains robust in sectors like retail and travel, Alphabet has seen budget cutbacks in other areas, impacting its main source of revenue. The company’s ad revenue for the third quarter reached $59.65 billion, a significant increase from $54.48 billion the previous year. Within the advertising segment, YouTube ads generated $7.95 billion in revenue, up from $7.07 billion last year.
Alphabet’s Financial Performance and Workforce Reductions
Alphabet reported a net profit of $19.69 billion for the July-September period, compared to $13.91 billion the previous year. The company’s revenue for the same period reached $76.69 billion, slightly exceeding estimates. Additionally, Alphabet reduced its workforce by laying off approximately 12,000 employees, representing 6% of its global workforce. The company cited a “different economic reality” as the reason for these cuts, which resulted in severance and related charges of $2.1 billion for the first nine months of the year.
