Growing cloud and advertising business pleases Alphabet and Google shareholders

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The Google Group Alphabet has recently increased its turnover more than expected, particularly in the internet search and cloud business. Google CEO Sundar Pichai attributes this to the growing use of AI software. Artificial intelligence has also helped YouTube achieve a new revenue record. Investors reacted with delight, and Alphabet's share price jumped sharply. Exactly one year ago, the stock market was still disappointed by Google's cloud revenue.

However, in the third quarter ended September this year, Alphabet increased its total turnover by 15 percent year-on-year to 88.3 billion US dollars. This is also 2 percent more than market observers had expected. Operating profit even increased by 34 percent year-on-year to 28.2 billion dollars, while the profit margin rose from 28 to 32 percent in the same period. This also resulted in a 34 percent increase in net profit to 26.3 billion dollars.

Core business Internet search with advertising

Google's Internet search business continues to account for the largest share of Alphabet's business. This division was able to increase its turnover by 12 percent year-on-year to 49.4 billion dollars. This is of course due to advertising revenue, which grew by 10 percent to 65.9 billion dollars across the group compared to the previous year. This also includes advertising on YouTube, where revenue rose by 12% year-on-year to 8.9 billion dollars. This is the first time that the video platform has surpassed the 50 billion dollar mark in terms of revenue within twelve months.

Alphabet CEO Pichai blames AI for the increased revenue and explains: "Our commitment to innovation and our long-term focus and investment in AI is paying off as consumers and partners benefit from our AI tools. In the search space, our new AI capabilities are expanding what people can search for and how they search for it." AI improves video recommendations on YouTube, for example, explains Google manager Philipp Schindler according to CNBC. According to him, the AI language model Gemini allows YouTube to "recommend more relevant, up-to-date and personalized content to users".

Cloud and other bets

Although Google's cloud makes a much smaller contribution to Alphabet's total revenue than its advertising business, it was able to increase its revenue by 35 percent year-on-year to 11.4 billion dollars in the last quarter. According to the Group, this is due to the AI offerings within the cloud solutions, which also include subscriptions for enterprise customers. "In the cloud, our AI solutions help to increase product acceptance among existing customers, win new customers and close larger deals," said Pichai.

The so-called "other bets", such as future projects like delivery drones or self-driving cars like Waymo's robotaxis, account for an even smaller share of Group revenue. This division was able to increase its revenue by almost 31 percent to 388 million dollars. However, the operating loss of this division is around 1.12 billion dollars, compared to just under 1.2 billion dollars a year ago.

Number of employees falls minimally, share price rises significantly

Although the Google Group is also trying to make savings, with AI methods supposed to help, the number of Alphabet employees has barely decreased within a year. At the end of September 2024, the company had 181,269 employees. This is around 1,100 or just 0.6 percent fewer than at the same time last year.

The stock market reacted positively to the developments at Alphabet. The Google share price has already risen by around 23% over the course of this year, but rose by a further almost 6% yesterday in after-hours trading.

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