Alphabet Q3 Earnings Beat Fueled by YouTube Ad Growth

Following the market close today, Alphabet revealed its financial results for the third quarter. The parent company of Google reported revenues totaling $46.2 billion and earnings of $16.40 per share, supported by a net income of $11.2 billion.

Financial forecasts, as reported by Yahoo Finance, anticipated Alphabet would achieve earnings of $11.21 per share with revenues of $42.88 billion. Additional projections even suggested a per-share income of $11.37 based on revenue of $42.84 billion.

Immediately following the release of these better-than-expected results, the company’s stock price increased by approximately 8.5%.

Among the prominent technology firms that disclosed their earnings today – including Twitter, Facebook, Apple, and Amazon, alongside Alphabet – the market exhibited the strongest positive response to Alphabet’s performance. Let's examine the factors contributing to this outcome.

Sum of the parts

A closer examination of the company’s financial performance reveals that YouTube’s revenue increased to $5.0 billion, compared to $3.8 billion in the third quarter of 2019. Financial experts had anticipated YouTube revenue of $4.52 billion for the latest quarter.

Google Cloud achieved revenue of $3.44 billion, up from $2.4 billion in Q3 2019. This suite of cloud computing solutions, productivity tools, and other services for businesses produced $3.0 billion in revenue during the previous quarter. Expectations among analysts were for Google Cloud to bring in $3.31 billion in revenue during the most recent quarter.

Alphabet’s experimental ventures group, Other Bets, recorded $178 million in revenue, while continuing to represent a significant drain on operating income. This group of companies experienced an operating loss of $1.1 billion during the quarter.

This loss was greater than the $941 million operating deficit reported for Other Bets in the same quarter last year, suggesting ongoing financial challenges. It’s important to note that Alphabet does not currently expect Other Bets to be profitable. However, an operating loss exceeding $1 billion is still noteworthy, especially considering Google’s revenue accounted for 99.66% of the company’s total revenue for the period.

In conclusion, Alphabet continues to demonstrate strong financial health. The company generated $17.0 billion in net cash from its operations during the quarter, resulting in free cash flow of $11.6 billion.