Alphabet Q3 Results Reflect Growth in Google Cloud Business

The cloud business, along with sales of digital content via the Play store, accounted for more than 10 percent of the Google segment's $22.3 billion in Q3 revenues.

Google Alphabet

Google parent Alphabet's better-than-expected third-quarter results show that while the company continues to rely heavily on advertising dollars, some of its other businesses—most notably its cloud unit—have begun contributing meaningfully to the top line.

Revenue from Google's cloud business and the sale of digital content via its Play store accounted for $2.4 billion, or more than 10 percent of the $22.3 billion in revenues that the Google segment under Alphabet made last quarter. That number represented increases of 39 percent from the same period last year and 12 percent sequentially.

During the earnings call on Oct.28, Alphabet Chief Financial Officer Ruth Porat pointed to the revenue growth as a sign that Google's investments in different businesses is beginning to pay off.

"Google Cloud is generating substantial revenue growth, reflecting the ongoing momentum in the business as well as the enormous opportunity in this area," Porat said.

During the earnings call, Google CEO Sundar Pichai touted "strong customer engagement" for the company's cloud business.

He pointed to Google's setting up a separate cloud unit, its investments in machine learning, and the growing portfolio of products and services in this category as evidence of Google's commitment to deliver new capabilities for its cloud customers. Over the next year, Google will add eight new cloud regions, including Mumbai, Singapore, Sao Paulo and Frankfurt, he said.

"As we officially move into the Google Cloud era, our goal remains the same," Pichai said. "We want to build the most open cloud for all businesses and make it easy for them to build and run great software."

For the most part though, Google's revenues continue to be heavily ad-dependent.

About $16.1 billion of the $22.3 billion Google generated in revenues last quarter came from ads placed on Google websites, including Search, YouTube, Maps and Finance. Third-quarter revenue was 23 percent higher on a year-over-year basis and 4 percent higher than second-quarter revenues.

As it has for the past few quarters, ads displayed in mobile search results contributed significantly to the increased revenues from Google websites. Some of the growth also came from YouTube ads—which, according to Porat and Pichai, continue to be a high-performing area for Google.

Revenues from ads on Google network member websites, including those sold via its AdSense, DoubleClick and AdMob, grew a modest 1 percent year-over-year to $3.1 billion.

Meanwhile, Alphabet's "Other Bets," the name the company uses for its collection of disparate business ventures, such as Nest, Fiber and Verily, continued to swim in red ink, though somewhat slightly less so than last year.

Combined, Alphabet's Other Bets accounted for an $840 million operating loss on revenues of $197 million, compared with a $980 million operating loss on $141 million revenues in the same period last year.

Porat urged investors to look beyond the short term for the Other Bets. "Quarterly revenues can be lumpy for three primary reasons," Porat said referring to the performance of the Other Bets segment. "First, the Other Bets are early-stage. Second, they represent an aggregation of businesses operating in different industries. And finally, they may be impacted by one-time items like partnership deals," she said.

Google chalked up third-quarter net income of $6.3 billion, representing earnings per share of $9.06. The company held in excess of $83 billion in cash and securities at the end of the quarter.

Jaikumar Vijayan

Jaikumar Vijayan

Vijayan is an award-winning independent journalist and tech content creation specialist covering data security and privacy, business intelligence, big data and data analytics.