Alphabet outperforms in both revenue and profit, boosted by cloud sales

Google parent alphabet reported third-quarter earnings that beat top and bottom lines, with strong revenue growth from the company's cloud unit.

The company's shares rose 4% in after-hours trading.

Here are the results:

• Earnings per share: $2.12 versus $1.85 expected from LSEG
• Revenue: $88.27 billion vs LSEG expects $86.30 billion

Here are other numbers Wall Street has been watching:

• YouTube advertising revenue: $8.92 billion versus $8.89 billion, according to StreetAccount
• Google Cloud revenue: $11.35 billion vs. According to StreetAccount, $10.88 billion
• Traffic Acquisition Cost (TAC): $13.72 billion versus $13.53 billion, according to StreetAccount

Alphabet's revenue rose 15% year-over-year, which was stronger than the year-ago quarter.

The company reported a stunning $11.35 billion in cloud revenue, up nearly 35% from $8.41 billion last year. The company attributed its strong cloud results to its AI offerings, which include subscriptions for enterprise customers.

Opening his call with investors, Alphabet CEO Sundar Pichai said the company's “full stack” of AI products are now operational at scale and being used by Google's billions of users, creating “a virtuous circle “.

The search company's strong quarter kicks off a big week of earnings for the tech industry's mega-cap companies. Meta and Microsoft report on Wednesday, followed by Apple and Amazon on Thursday.

Google's search business generated revenue of $49.4 billion. That's up 12.3% from a year ago, and the search business remains the largest contributor to the company's revenue growth, said Alphabet CFO Anat Ashkenazi.

The company reported advertising revenue of $65.85 billion. That's up from $59.65 billion a year ago, showing that Google's advertising business continues to grow, albeit more slowly than in the second quarter.

YouTube advertising revenue beat analysts' expectations and showed better growth than last quarter. The Google-owned company is facing increasing pressure from other advertising options such as Netflix, TikTok and Amazon.

AI improves YouTube recommendations, said Chief Business Officer Philipp Schindler in an interview with investors. The company's Gemini AI language model has given YouTube the ability to “recommend more relevant, fresh and personalized content to the viewer.”

Alphabet's net income rose to $26.3 billion, or $2.12 per share, compared with $19.7 billion, or $1.55 per share, in the year-ago quarter.

Other Bets, which includes life sciences unit Verily and self-driving car unit Waymo, reported third-quarter revenue of $388 million. That's up from $297 million a year ago.

Last week, Waymo closed a $5.6 billion funding round to expand its robotaxi service in Los Angeles, San Francisco and Phoenix to other cities.

Google Lens, the company's image recognition product that uses mobile cameras and photos, is now used for over 20 billion visual searches per month, Pichai said. It is one of the fastest-growing search products and is widely used for shopping, he added.

Alphabet's third quarter was marked by external and internal upheaval, including at the highest levels of leadership and in its most important business unit.

Earlier this month, the company replaced Prabhakar Raghavan, the company's search and ads chief since 2018, with Nick Fox, a longtime executive known for his role in Google's Assistant division. Additionally, the team working on the Gemini app, which includes the company's direct-to-consumer artificial intelligence products, will join Google DeepMind, led by Demis Hassabis.

The company said Tuesday that it is evaluating how this restructuring will impact its segment's operating results.