Google is running out of steam in the “cloud” but shines in digital advertising

The 22.5% increase in quarterly turnover of “Google Cloud» announced Tuesday evening by the digital giant, disappoints. It marks a decline compared to the 28% growth observed in the second quarter. The surprise is all the more unpleasant since at the same time, Microsoft is reporting better than expected performance from its division.Intelligent Cloud“. Microsoft’s Azure subsidiary, which covers its public cloud, thus posted a 29% jump in its turnover.

Word “cloud» (cloud in English) refers to the storage of a client’s computing resources in its provider’s servers. The client accesses them remotely over a network, instead of these resources being resident in its own machines. These solutions free the user from numerous investment and maintenance constraints. Amazon Web Services and Microsoft Azure are leaders in this fast-growing sector.

Ruth Porat, chief financial officer of Google’s parent company, acknowledges that cost reductions by her company’s customers have weighed on the cloud services platform’s recent growth. The news caused Alphabet’s price to plunge by some 6% on the over-the-counter market Tuesday evening after the Nasdaq closed. The monetization of the generative artificial intelligence engines designed by Google is the big question hanging over the group’s valuation. However, the cloud, and not simply Google’s dominant activity which is the search for information on the Internet, is a crucial destination for artificial intelligence software.

Read alsoGoogle wants to attract businesses with a “cloud” boosted with AI

Cloud profits below expectations

During the third quarter, profits of $266 million generated by Google Cloud, on a turnover of $8.4 billion, turned out to be below expectations. It is considered essential that Google develops its artificial intelligence applications available on the cloud more quickly to ensure its future growth.

However, for now, Alphabet is reporting better-than-expected performance in its traditional digital advertising businesses. For the first time in more than a year, all activities combined, Alphabet posted growth of more than 10% in its turnover. Its net profits in the third quarter reached 19.7 billion dollars on total turnover of 76.7 billion. Its operating margins climb from 3% to 28%. A reduction in its workforce of 6%, or 12,000 jobs, contributed to this improvement.

Google’s core activities in searching for information on the Internet, and the services associated with it, saw their sales increase by 11%, to reach $44 billion. That’s almost a billion more than analysts’ expectations. Advertising revenue generated by YouTube reached almost 8 billion dollars in the third quarter. Competition from TikTok is particularly fierce in this niche. Sundar Pichai, CEO of Alphabet, specifies that Internet users view 70 billion advertisements on YouTube every day, compared to just over 50 billion at the start of the year.