Google-parent Alphabet’s cloud division reported its slowest revenue growth in at least 11 quarters, sending the company’s stock down 5.7% after hours, even as sales at rival Microsoft’s cloud unit boomed. The drop in Google’s share price despite beating Wall Street estimates for profit and sales, shows how much investors want the company to deliver gains in artificial intelligence, and show the cloud business remains competitive against a more powerful Azure from Microsoft and Amazon.com’s AWS.
Google Cloud third-quarter revenue rose 22.5% to $8.41 billion, the slowest growth since at least the first quarter of 2021. The cloud unit reported an operating income of $266 million, compared with an operating loss of $440 million a year ago. Wall Street expected cloud computing revenue of $8.62 billion.
Finance chief Ruth Porat said in a conference call on Tuesday that the third-quarter cloud growth is due to “customer optimization efforts,” without elaborating.
Microsoft Azure outperforms Google Cloud with 29% growth
By contrast, revenue from Microsoft’s Intelligent Cloud unit, which houses the Azure cloud computing platform, grew to $24.3 billion, compared with analysts’ estimate of $23.49 billion, LSEG data showed. Azure revenue rose 29%, higher than a 26.2% growth estimate from market research firm Visible Alpha. Microsoft shares rose 5% after hours.
“Despite Alphabet topping quarterly earnings and revenue estimates, investors were disappointed by the relatively weak performance at its Google cloud platform, which is at risk of falling further behind Azure and AWS,” said Investing.com senior analyst Jesse Cohen.
Microsoft has been investing heavily in its cloud business, acquiring companies like Nuance Communications and Activision Blizzard to expand its offerings and customer base. The company also announced a strategic partnership with AT&T to migrate the telecom giant’s network to the cloud.
Google faces challenges in cloud market amid slowing economy
Fears of a slowing global economy have prompted companies to curb spending on cloud-related services, including expensive AI tools, which has slowed revenue growth at Google’s cloud unit to 22.5% in the third quarter, from 28% in the prior three-month period.
Google has been trying to catch up with its rivals in the cloud market by launching new products and features, such as Vertex AI, a unified platform for machine learning and data analytics. The company also announced a deal with Shopify to host the e-commerce platform’s online stores on its cloud infrastructure.
However, Google still faces challenges in competing with Microsoft and Amazon, which have larger market shares and more loyal customers. According to research firm Canalys, Google had a 9% share of the global cloud market in the second quarter of 2023, compared with 19% for Microsoft and 31% for Amazon.
Google also faces regulatory scrutiny over its dominance in online advertising and search, which could limit its ability to leverage its data and technology across its businesses. The company recorded ad revenue of $59.65 billion in the third quarter, compared with $54.48 billion a year earlier. Analysts on average had expected $59.12 billion in revenue from its advertising business.
