Alphabet, the parent company of Google, demonstrated solid financial results in its third-quarter earnings report, suggesting a balanced approach to growth and spending even as it faces significant regulatory challenges, the Wall Street Journal reports.
Google’s stock rose nearly 6% in after-hours trading on Tuesday, driven by better-than-expected revenue and operating income, largely from its core search business and its fast-growing cloud-computing division.
The cloud business, a central pillar in Alphabet’s growth strategy, posted a 35% year-over-year revenue increase—the highest growth rate for the unit in two years. It achieved an operating income of $1.9 billion, exceeding analyst expectations by 77%, as per FactSet. Meanwhile, Google’s core services segment, which includes search, YouTube ads, subscriptions, and devices, recorded an impressive $30.9 billion in operating income with an operating margin of 40.3%, the highest since Alphabet began detailing this metric in 2019.
The company’s strong performance comes amid heightened scrutiny of its spending and broader regulatory challenges. Alphabet’s stock had fallen nearly 7% following its previous earnings report, reflecting investor concerns about extensive investments in artificial intelligence—a trend common across the tech industry. However, Google’s regulatory landscape remains uniquely complex, as it is currently the subject of several antitrust lawsuits. The Justice Department’s anticipated November filings could include a call for a structural breakup of Google, which controls over 90% of global search engine traffic. These developments have impacted Alphabet’s stock valuation, which, at 20 times projected earnings, remains the lowest among other tech giants and below the broader S&P 500.
Despite this uncertainty, Alphabet has signaled a commitment to cost discipline. Anat Ashkenazi, the company’s new chief financial officer, emphasized the priority of maintaining efficient spending to support long-term innovation. Alphabet has increased its workforce by nearly 1,700 employees this quarter, though these additions are lower than its traditional third-quarter hiring levels, which had averaged over 7,000 new hires from 2018 to 2022. Ashkenazi indicated that capital expenditures would likely moderate in 2024, reflecting the company’s strategic focus on prioritizing investment in high-impact areas.
