Shares of Alphabet Inc. (NASDAQ: GOOGL) fell in the pre-market trading Wednesday following the release of its third-quarter earnings report. Disappointing gains in the tech giant’s cloud computing division have offset an otherwise solid set of results.
Alphabet reported an 11% increase in group revenues, soaring to $76.7 billion compared to last year, outperforming the Street consensus forecast of $75.9 billion. Advertising sales rose by 9.5% to a record $59.65 billion.
Search and other revenues surged by 11% to $44.03 billion, while YouTube ad sales saw an impressive growth of 12.4%, amounting to $7.95 billion, beating Street forecasts.
Google’s earnings per share (EPS) came in at $1.55 for the three months ended in September. This marked a significant jump from the previous year’s figure of $1.06 per share and outperformed Street forecasts by about 10 cents per share.
Google cloud revenues only increased by 22.5% to $8.41 billion, marking the slowest growth rate in over two years. More notably, it fell short of the 29% growth rate recorded by Microsoft’s (NASDAQ: MSFT) flagship Azure cloud offering. Cloud division margins also disappointed, dropping by 180 basis points from the previous quarter to 3.2%.
KeyBanc Capital Markets analyst Justin Patterson, who holds an ‘overweight’ rating on Alphabet Inc. (NASDAQ: GOOGL) with a price target of $153, expressed concerns about Google Cloud’s performance. He stated,
“We see this creating a near-term overhang given that Google Cloud appears to have ceded market share to Microsoft Azure (which accelerated) and that this may spur more questions whether further investment is needed for market share gains.”
“Big picture, we do not believe positioning in Search or AI has changed.”
Alphabet stock took a massive hit after the news, plummeting by 5.9% in pre-market trading. This hints at an opening bell price of $131.85 each.