Google parent’s sales, excluding partner payouts, were US$71.36 billion in Q2
Capital spending rose to US$13.2 billion in the second quarter, supporting Google’s AI programs and computing power needs, the company said Tuesday. That exceeded analysts’ estimates of US$12.2 billion.
Google has rushed to weave artificial intelligence into all of its widely used products, including Gmail, Google Docs and search, while boosting its own AI capabilities — an expensive initiative with mixed results. Some investors are looking for clearer evidence of return on investment for all the billions in spending on AI progress, said Daniel Morgan, senior portfolio manager at Synovus Trust.
“How much revenue are you getting from that?” he said. “When I look at this report what I see is Google as it’s always been. They generate money from advertising and search.”
Alphabet shares fell about 3 per cent in premarket trading on Wednesday before New York exchanges opened. The stock had closed at US$181.79 and is up 30 per cent this year.
Investor concerns around Alphabet’s spending detracted from better-than-expected sales in the quarter, which were boosted by demand for cloud-computing services and serch advertising revenue.
Sales, excluding partner payouts, were US$71.36 billion in the second quarter, the company said in the statement. Analysts had projected US$70.7 billion, according to data compiled by Bloomberg. Net income was US$1.89 per share, compared with Wall Street’s US$1.84 per-share estimate.
“We’ve certainly seen the benefit of our strength in AI, AI infrastructure, as well as generative AI solutions for cloud customers,” Alphabet chief investment officer Ruth Porat said on a call with media. “There is no question customers are turning to us as they are building out their capabilities.”
In May, Google announced AI Overviews for search written by generative artificial intelligence technology, but the launch of the feature didn’t go well. Some AI Overviews offered embarrassing suggestions, advising people to eat rocks or to put glue on pizza, for example. Still, quarterly search advertising revenue was US$48.5 billion, compared with the average analyst projection for US$47.6 billion.
“If it takes more effort for consumers to go anywhere else to search,” said Evelyn Mitchell-Wolf, an analyst with EMarketer, “Google is going to keep monetizing search traffic higher than any of its competitors.”
YouTube reported US$8.66 billion in revenue, compared with analysts’ average estimate of US$8.95 billion. Of Alphabet’s various businesses, YouTube has been the most vulnerable to swings in the digital-ad market.
Alphabet’s Other Bets — a collection of moonshot units that includes the life sciences business Verily and the self-driving car effort Waymo — brought in US$365 million in revenue while posting an operating loss of US$1.13 billion. That was steeper than analysts’ projection for a loss of US$1.07 billion. Alphabet has recently put pressure on its bets to spin off as independent startups, rather than becoming business units of their parent company.
In its latest report, Alphabet indicated that it has US$100.7 billion in cash, equivalents and marketable investments, down from the US$108 billion it reported in the first quarter. In recent months, Google showed interest in acquiring two companies, either of which would have been the biggest-ever purchase for the internet giant — but both times, the deals fell apart. The acquisitions, for HubSpot Inc. and Wiz Inc., would have strengthened the company’s cloud and cybersecurity offerings, helping it to compete with its tech rivals.
“We are always looking for good opportunities to diversify the portfolio and will continue to do so if we find the right combination of factors, including value,” Porat said, without commenting on the Wiz talks. “Regulatory scrutiny is not new for us, and we have successfully managed regulatory reviews of many large deals in the past.”
Later this month, Anat Ashkenazi, a veteran Eli Lilly & Co. executive, will join the search giant as chief financial officer. Porat, Alphabet’s longest serving CFO, will stay on as president and chief investment officer, spending more time working on the company’s portfolio of other bets.
With assistance from Ed Ludlow and Shona Ghosh