Google Cloud was a winning bright spot for parent company Alphabet, which saw a broad spike in ad spend for Google Search and YouTube, as well as continued strength from Google Play for the third quarter ending September 30th
Google Cloud revenue – including revenue from Google Cloud Platform (GCP), Google Workspace (formerly G Suite) productivity tools, and other enterprise cloud services – increased to $ 3.44 billion versus $ 2.38 billion $ 3 billion in the year-ago quarter and just over $ 3 billion in the second quarter.
Alphabet / Google CFO Ruth Porat said that overall GCP’s revenue growth rate was well above the cloud, while Google Workspace’s results were driven by seat growth followed by growth in average revenue per seat.
“Given the opportunity that presents itself, we are aggressively investing in clouds,” said Porat. “To be honest, the fact that we were later relative to colleagues is very encouraging given the pace of customer acquisition and the very strong revenue growth at both GCP and Workspace. We believe we are still early on this journey. ”
Google Cloud revenue growth equates to an annual revenue rate of $ 13.77 billion, down from $ 12.03 billion based on second quarter results and $ 11.08 billion based on first quarter results.
According to Pichai, three areas are driving the growth of Google Cloud, the third largest cloud computing provider after Amazon Web Services and Microsoft Azure.
As the digital shift continues, Google Cloud continues to provide a foundation for data processing and analysis – one of the fastest growing market segments, Pichai said. BigQuery – Google Cloud’s fully managed data warehouse that offers real-time and predictive analytics – is winning retailers like Best Buy and helping them create better experiences for customers, he said.
“Customers appreciate our differentiated AI / ML-based, industry-specific solutions,” said Pichai. “This translates into significant profits for brands like Unilever … and Reckitt Benckiser. We are also working with government agencies like the US Navy to modernize ship and facility maintenance. We also work with the Defense Innovation Unit, which is part of the US Department of Defense, to assist military doctors with cancer detection research. We recently signed a corporate agreement with the US Department of Energy to scale research efforts and innovate in national laboratories and field sites. ”
The growth of Google Cloud is also being driven by customers who are increasingly moving to the cloud to increase efficiency and reduce IT costs.
“Our strength in the multi-cloud space is an advantage here,” said Pichai. “This is helping us win big data center and IT transformation contracts like Nokia, which recently announced it will migrate and modernize around 30 data centers in 12 countries to Google Cloud.”
The changing nature of work – fueled by the relocation from home during the coronavirus pandemic – is creating a more collaborative world, and customers want to support hybrid work environments, Pichai said.
“We’re seeing significant growth in demand,” he said.
Earlier this month, Google announced Google Workspace, the rebranded G Suite offering that brings more functionality for enterprise customers and new ways to purchase its productivity and collaboration tools.
“This is helping organizations like the state of West Virginia and the Ocean Network Express shipping company improve collaboration productivity for their employees,” said Pichai.
Google Meet, which is part of Google Workspace, peaked in the third quarter of 235 million daily meeting participants and more than 7.5 billion daily video call minutes.
Pichai recognized the focus of Google Cloud under CEO Thomas Kurian, who will celebrate his second year as head of the cloud division in January.
“I am satisfied with the execution,” said Pichai. “It was a very consistent, focused strategy – the focus was on the five main regions, the four customer segments and the six priority industries: retail in healthcare, financial services, media and entertainment, manufacturing and the public sector. That focus and deepening and scaling our launch, both in terms of our people (and our partners), was key. Some of the key differentiators play out especially as we have deepened them as unique industry solutions. ”
According to Pichai, there is a time lag between hiring and training sales reps and the time a company enables them to become more productive.
“I can see it go up and I can see the results come into play,” he said.
Alphabet for future Google Cloud earnings
Starting with Alphabet’s fourth quarter results, the company will split Google Cloud as a separate reporting segment.
“Given the advances and opportunities we are making for Google Cloud in this growing global marketplace, we continue to invest aggressively in building our go-to-market capabilities, executing our product roadmap, and expanding the global footprint of our infrastructure,” said Pichai. “The segmentation also gives you information about the size of our investments, which you can use to gauge the progress we are making on the multi-year journey towards creating sustainable value.”
Alphabet will also publish Google Cloud results for the full year 2018-2020. “Not only will we provide the revenue breakdown data that we expanded earlier this year, but we will also add the operating income for each of our segments, which we believe is the most relevant data,” said Porat
Total income of the alphabet
Parent company Alphabet’s total revenue for the third quarter was $ 46.17 billion. This corresponds to an increase of 14 percent compared to the third quarter of the previous year, when growth had accelerated by 20 percent. Net income increased to $ 11.27 billion, or $ 16.40 earnings per share (EPS), compared to $ 7.07 billion, or $ 10.12 EPS, for the same period last year. Alphabet exceeded Wall Street sales expectations by $ 3.3 billion and earnings per share by $ 5.19.
The increase in revenue was due to the Mountain View, California-based company experiencing its first quarterly revenue decline since going public in 2004 in the second quarter, driven by lower ad spend for customers in the wake of the coronavirus pandemic.
“We’re pleased with the quarter-over-quarter improvement in profitability, reflecting both Q2 revenue performance and the tactical adjustments we made to slow certain spending categories in response to (the coronavirus),” said Porat . “In particular, the slowdown in headcount growth this quarter reflects the steps we took at the start of the pandemic to focus hiring on our top priority areas like Google Cloud. Excluding the impact of the completion of the upcoming Fitbit acquisition, we expect the fourth quarter to see a moderate further slowdown in employee growth. We also saw the impact of the steps we took to slow down some categories of marketing spend. ”
Google increased its workforce to 132,121 in the third quarter from 127,498 at the end of the second quarter. Most of the new hires were engineers and product managers. The biggest increases were in the technical and sales functions of Google Cloud.
Pichai said the quarter was strong, consistent with the broader online environment. The results are testament to the company’s extensive investments in AI and other technologies to improve Google search and provide services that people turn to for help in moments big and small, he said.
Google search and DOJ lawsuit
Google search and other promotions revenue rose 6 percent to $ 26.34 billion in the third quarter, compared to $ 24.74 billion in the same period last year when advertiser spending began to surge in August.
“We have seen ad spend improving across all regions and most of our industries as the world accelerates its transition to online and digital services,” said Pichai.
Pichai responded to the federal antitrust lawsuit filed against Google by the US Department of Justice and eleven states earlier this month, alleging the tech giant deliberately maintained and abused its monopoly power in general search, search advertising, and general search text advertising through “anti -” actions. competitive and exclusive distribution agreements. ”
“We believe our products will bring significant consumer benefits and we will confidently advocate them,” said Pichai. “Our company continues to focus on continuing our work to create a search product that people love and appreciate. We pride ourselves on the fact that people choose Google Search not because they have to, but because it helps. ”
Google is facing further regulatory scrutiny in the US and abroad. Yesterday, Pichai testified before a US Senate committee on Section 230 of the Federal Communications Decency Act, which protects online platforms and Internet companies such as Google from liability for material posted by their users and allows them to generate “good faith” users Moderate and remove content that is deemed objectionable.
“The exam isn’t new to us and in some ways now industry-wide and unsurprising,” Pichai said. “We will be constructive wherever possible and, as we have shown in some cases in the past, we are confident of the benefits we bring to our users. We make our case where there is feedback or decisions. We will be flexible and adapt. While there is a lot to be done in terms of legislation and regulation, part of it is being resolved, but it also creates security and in some cases clarity and opportunity. ”
Google’s YouTube advertising revenue rose to $ 5.04 billion in the third quarter, up 5 percent from $ 3.8 billion for the same period last year. This is due to continued strong growth in direct responses, followed by a recovery in brand advertising due to increased spending by advertisers Porat.
As a sign of the times, views for guided meditation videos have increased 40 percent since mid-March, while do-it-yourself face mask tutorials have been viewed over 1 million times, Pichai said.
YouTube now has more than 30 million music and premium paid subscribers and over 35 million including free trials, and YouTube TV now has more than 3 million paid subscribers.
Alphabet shares, which rose 3.05 percent to close at $ 1,556.88, rose 6.75 percent to $ 1,662 after close of trading Thursday.
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