Google parent Alphabet’s Q2 earnings exceed expectations; CFO transitions to new role

Googleparent Alphabetexceeded expectations in its second-quarter results, fueled by the demand for its cloud services and a resurgence in advertising revenue, pushing the company's shares by 7% in after-hours trading.

Alphabet reported revenue of $74 billion in the second quarter, above analysts’ estimates of $72.8 billion, according to Refinitiv data. However, revenue growth slowed to 7% from 13% in the corresponding period of the last fiscal year. Its revenue in the year-ago period was $69.6 billion. 

Alphabet’s Q2 net profit rose to $18.3 billion (or $1.44 per share) from $16 billion ($1.21 per share) in the year-ago period. This was beyond analysts’ expectations of $1.34 per share, according to Refinitiv estimates.

“The momentum across the company drove our results this quarter. We delivered solid performance in Search and YouTube and ongoing strong growth in Cloud, where we remain focused on long-term value creation,” Sundar Pichai, Chief Executive Officer of Alphabet and Google, said, during the second-quarter earnings call from London.

Google Cloud Platform, the company’s cloud-computing unit, competes with Amazon Web Services and Microsoft Azure. In the second quarter, the cloud-computing arm registered a profit of $395 million, against a loss of $590 million in the prior year. Revenue from the unit rose 28% to $8 billion from $6.3 billion the year earlier.

Most of Alphabet’s revenue comes from Google ads. Google’s advertising revenue, including Google Search, YouTube ads, and Google Network, was $58.1 billion in the second quarter, compared with $56.3 billion in the year-ago period. Its advertising business witnessed 3.3% growth in the quarter. 

Meanwhile, revenue from Google’s search, its largest business, rose 4.8% to $42.6 billion in Q2, and YouTube’s ad sales increased by 4.4% to $7.7 billion.

“I'm really pleased with how YouTube is growing audiences and driving increased engagement,” Pichai said, adding that YouTube Shorts are now watched by over 2 billion logged-in users every month, up from 1.5 billion just one year ago.

During the period, Other Bets, encompassing the Waymo self-driving car business and the Verily life sciences unit, recorded a 48% increase in revenue, reaching $285 million. However, the division still incurred a loss of $813 million.

Speaking about capital expenditure in Q2, Ruth Porat, Chief Financial Officer of Alphabet and Google, said, “The largest component was for servers, which included a meaningful increase in our investments in AI compute. We expect elevated levels of investment in our technical infrastructure increasing through the back half of 2023 and continuing to grow in 2024.”

Philipp Schindler, Senior Vice President and Chief Business Officer of Alphabet and Google, noted that Q2 was a big quarter for Google AI and its ads products. He added that nearly 80% of advertisers already use at least one AI-powered search ads product.

In April, the company announced that it is bringing together a part of Google Research (the Brain Team) and DeepMind to accelerate its progress in AI. The group, called Google DeepMind, is reported within Alphabet's unallocated corporate costs prospectively beginning in the second quarter of 2023.

As of June 30, 2023, Alphabet’s employee count was 1,81,798, up from 1,74,014 in 2022. The substantial majority of the employees affected by its workforce reduction are no longer included in its headcount, the company said. Most of the remaining employees affected will no longer be reflected in its headcount by the end of 2023.

Speaking about the headcount, Pichai noted, “We continue to slow our expense growth and pace of hiring and ensure our teams are aligned to our highest priorities. This quarter, we reallocated a number of teams, including aligning Waze's ad sales with our existing business organisation.” 

The tech giant also announced that Porat will assume the newly-created role of President and Chief Investment Officer of Alphabet and Google, effective September 1, 2023. Porat will continue to serve as CFO, including leading the company’s 2024 and long-range capital planning processes, while the company searches for and selects her successor.

Porat, who assumed the role of CFO in May 2015, is the company’s longest-serving CFO. In her new role, Porat will continue to report to Pichai.

Porat will be responsible for Alphabet’s investments in its Other Bets portfolio, working closely with Pichai, and the company’s investments in countries and communities around the world. She will also focus on engagement with policymakers and regulators regarding employment, economic opportunity, competitiveness, and infrastructure expansion.

“In her new role, Ruth will strengthen our collaboration with policymakers and shape our corporate investments to have maximum economic impact for people and economies around the world,” Pichai noted.