Alphabet shares gain after revenue beats expectations, boosted by Google search ads

SAN FRANCISCO – Google parent Alphabet reported second-quarter revenue that exceeded analysts’ expectations, boosted by advertising on the company’s flagship search business, which is withstanding new competition from artificial intelligence (AI) chatbots. 

Alphabet’s sales, excluding partner payouts, were US$62 billion (S$82.4 billion) in the quarter, the company said on Tuesday in a statement. Analysts had projected US$60.2 billion, according to data compiled by Bloomberg. Search advertising performed well, generating US$42.6 billion, compared with analysts’ average estimate of US$42.2 billion.

The shares gained over 7 per cent in late trading.

Google’s flagship search business has

weathered an advertising slowdown

that affected social media companies, such as Meta Platforms and Snap, more severely in recent quarters. The company’s search product also continues to dominate despite new competitive threats from Microsoft and OpenAI, which have joined up to provide an alternative called ChatGPT that answers users’ questions with conversational responses powered by generative AI. Google’s chatbot, Bard, is not yet as widely used.

“Modest growth from YouTube and search put Google in a strong position as it prepares to defend its dominance in the digital advertising market,” Ms Evelyn Mitchell-Wolf, a senior analyst at Insider Intelligence, wrote in a note. “Google has the high ground. All it has to do now is keep increasing revenues while executing its carefully laid plans to lead advertisers and consumers into the AI-powered future without any catastrophes.”

Net income was US$18.37 billion, or US$1.44 per share, compared with Wall Street’s US$1.32-per-share estimate.

Alphabet also said that chief financial officer Ruth Porat will fill in a newly created role of president and chief investment officer, starting in September. Ms Porat will serve as CFO for the next month as the company searches for her replacement. The change arguably makes Ms Porat the most powerful woman in the technology industry.

Although Ms Porat is moving into a new role, Google signalled that it will maintain the culture of fiscal discipline that she instilled. The company said it will continue to slow its pace of hiring, and noted that it has staffed up some generative AI projects by reassigning teams.

The company’s Bard chatbot and Search Generative Experience, an experimental version of Google search, “are being built by small, fast-moving teams that have been reallocated to these high-priority efforts”, chief executive Sundar Pichai said.

Google’s cloud unit brought in a profit of US$395 million on sales of US$8 billion, beating analysts’ estimates for a profit of US$163 million. Though the division trails the size of cloud businesses at Amazon and Microsoft, the effort is viewed as one of Google’s best bets for growth as its search business matures and the demand for computing infrastructure increases with the industry’s investment in AI.

YouTube reported ad sales of US$7.67 billion, compared with Wall Street’s estimate of US$7.4 billion. The division has been the most susceptible to marketers’ pullback in spending over the last year, so its performance ahead of estimates could be a good sign for competitors, too.

Alphabet’s Other Bets – a collection of nascent companies, including the self-driving car venture Waymo and life sciences unit Verily – brought in US$285 million in second-quarter revenue while narrowing its losses to US$813 million. BLOOMBERG