Google Cloud Drives Alphabet Q3 Revenue

Strong Google Cloud performance again helped drive Alphabet’s revenue in the company’s third quarter (ended Sept. 30), according to company executives.

“Once again, our results were driven by ongoing strength in mobile search, YouTube and Cloud,” Alphabet CFO Ruth Porat said on an earnings call Oct. 28.

Total company revenue grew 20% from a year ago to $40.5 billion. Network revenue increased 8% to $5.3 billion, while other revenue jumped 39% to $6.4 billion, “once again fueled by Cloud, followed by a strong performance from” Google Play, the company’s digital distribution service, Porat told analysts.

Meanwhile, “within Cloud, growth” in  Google Cloud Platform (GCP) was once again the primary driver of performance, with strong customer demand for our compute and data analytics products, complemented by ongoing growth in G Suite, reflecting both new pricing and seat growth,” Porat said.

Within other revenues, “in addition to continued strength in compute, Google Cloud saw substantial growth from data analytics as customers are seeing the benefits from implementing” Google’s BigQuery online service, she said. Also encouraging was that “Cloud continued to see significant growth in each region globally,” she told analysts.

Alphabet “saw customer momentum across multiple areas” in Google Cloud during Q3, CEO Sundar Pichai told analysts. New customer wins in the quarter included The Mayo Clinic, announced in September, he said, noting that health care company is using Google Cloud to “secure and store data and understand insights at scale.” Alphabet and Mayo Clinic, together, will “work to transform patient and clinician experiences, identify new methods of diagnosing diseases, conduct clinical research, and find new models for delivering patient care,” he said.

National Australia Bank, meanwhile, “recently added Google Cloud to its multi-cloud strategy to help the company better use data and deliver new and improved customer experiences,” and the Deutsche Börse stock exchange group is now relying on Google Cloud to “help them navigate the twin challenge of modernizing their digital operations and addressing significant regulatory requirements,” he said. Also, Macy’s is now among retailers using Google Cloud solutions to “help make the shopping experience as seamless and personalized as possible” for their customers, he said.

The company also recently announced a new Google Cloud region in Nevada. “When it launches in 2020, it will be our seventh cloud region” in the U.S., he said. Google Cloud also recently announced a new cloud region in Poland that will be its seventh in Europe.

Alphabet, meanwhile, continues to invest in deep computer science problems. “Significant advances” from the company include one that Pichai said is “powered by our long-term investment” in artificial intelligence (AI) that has improved “our understanding of the questions people ask Google Search.” He called it the “biggest leap forward for search in the past five years” and said it was made possible by a “new type of neural network-based technique for natural language processing” from Google called Bidirectional Encoder Representations from Transformers (BERT) that “recognizes subtle patterns and language, and provides more relevant results.”

Overall, Baird Equity Research views Q3 as a “solid” result for Alphabet, with “fundamental trends intact, and just as important, Alphabet continues to innovate across core Search, YouTube, and Cloud, in addition to nascent areas such as Voice, Driverless and Quantum,” Colin Sebastian, a Baird senior analyst, said in a research note.