Alphabet shares tank 10% despite Google Cloud's 103% growth
What's the story
Alphabet, the parent company of Google, has witnessed a sharp decline in its shares post the release of its third-quarter earnings. The company's results fell short of Wall Street's expectations, especially in the advertising sector. As a result, Alphabet's stock price fell by over 10% in after-hours trading on Wednesday.
Financial performance
Alphabet's Q3 revenue jumps 25% YoY to $127.6 billion
In the third quarter, Alphabet reported a 25% year-on-year increase in revenue to $127.6 billion. The growth was mainly driven by strong performances in Google Cloud and Search.
However, the figure fell short of analysts' expectations of $128.2 billion.
Operating income also rose 30% YoY to $40.6 billion, with an operating margin of 31.8%.
Profit drop
Net income and diluted EPS decline
Despite the revenue growth, net income attributable to common stockholders fell to $26.2 billion from $35 billion in the same quarter last year.
Diluted earnings per share (EPS) also declined to $2.12 from $2.87.
The decline was mainly due to an $8.7 billion loss on equity securities that reduced net income by $6.7 billion, as per Alphabet's earnings release.
Business expansion
Google Cloud and Google services drive growth
Google Cloud emerged as the key growth driver for Alphabet's growth, with revenue more than doubling to $30.7 billion, a 103% increase from last year.
The growth was driven by strong demand for AI infrastructure and solutions, core cloud services, and tensor processing unit (TPU) systems.
Google Services also saw an 11% increase in revenue to $96.3 billion.
Market reaction
Alphabet shares have gained over the long term
Alphabet shares have had a mixed performance over different time frames, falling 1.42% in the last five days and 4.57% in the last month.
However, the stock has given positive returns of 2% year-to-date (YTD) and gained 17% in the past year.
Over the long term, Alphabet shares have created significant wealth for investors, rising 117% in five years.