Alphabet and Microsoft smash estimates with $110bn revenue haul5 min read

Alphabet, Googles parent company, and Microsoft both posted strong revenue growth in the third quarter, while Twitter swung to a loss, as the three tech companies released results late on Tuesday.

Alphabet

Alphabet smashed Wall Street’s profit expectations in the third quarter, thanks to stronger-than-expected ad sales, though the Google parent fell short of expectations on revenue from its cloud computing division.

Revenue came in at $65.1bn, up 41 per cent year-on-year, and above analysts’ consensus estimates of $63.3bn.

Net income for the July-September period was up almost 70 per cent year-on-year at $18.9bn, beating estimates of $15.8bn. Earnings per share were $27.99.

Alphabet earnings at a glance

Actual versus estimate

Revenue: $65.11bn vs $63.29bn

Net income: $18.94bn vs $15.77bn

Earnings per share: $27.99 vs $23.32

Source: S&P Capital IQ

Google’s advertising revenue were an apparent beneficiary of rebounding search traffic, which analysts have attributed in part to increased travel interest post-pandemic.

The company’s robust advertising business — which is somewhat shielded from Apple’s recent moves to limit data gathering, due to its own vast troves of personal data — posted revenue of $53.1bn. Within that, advertising revenue from YouTube came in at $7.2bn, up more than 40 per cent on the same period a year ago.

However, the company’s cloud division fell short of expectations. Wall Street expected revenue in excess of $5.2bn, according to Refinitiv, versus the $5bn actually delivered.

Alphabet’s share price was down 2 per cent in initial after-hours trading, having been up more than 60 per cent since the start of the year. That performance has made it the best-performing member of the “FAANG” stock group of which is a member, along with Facebook, Amazon, Apple and Netflix.

Microsoft

Microsoft earnings at a glance

Actual versus estimate

Revenue: $45.3bn vs $44.0bn

Net income: $20.5bn vs $15.7bn

Earnings per share: $2.71 vs $2.07

Microsoft beat revenue and net profit forecasts as it continued to see tailwinds from its LinkedIn site, business apps and its growing cloud business.

First quarter revenue climbed 22 per cent to $45.3bn, handily beating estimates of $44bn, according to Refinitiv.

Net profit rose 40 per cent to $20.5bn, well ahead of estimates at $15.7bn That figure was also flattered by a $3.3bn one-off tax benefit.

Satya Nadella, chief executive, said the results reflected how Microsoft’s cloud offerings were helping businesses of all sizes “improve productivity and the affordability of their products and services by building tech intensity.”

Finance chief Amy Hood said Microsoft Cloud brought in $20.7bn of revenue, 36 per cent higher than a year ago. “We delivered a strong start to the fiscal year,” she said.

Gross margins were 70 per cent, down from 71 per cent a year ago, although operating income climbed 27 per cent to $20.2bn.

Thirteen of Microsoft’s 14 product categories increased revenue from a year ago, led by a 61 per cent gain in LinkedIn Marketing Solutions, a 50 per cent expansion in Azure, its cloud computing arm, and a 48 per cent jump in Dynamics 365, its enterprise applications division.

The lone laggard was Microsoft’s consumer hardware division, Surface, whose revenue fell 17 per cent. The global chip shortage is a likely culprit.

Meanwhile, Microsoft 365 now counts 54.1m subscribers, up from 45.3m a year ago.

Microsoft shares are up more than 40 per cent this year.

Twitter

Twitter said the impact of Apple’s new privacy changes on its business was “lower than expected”, as it posted third-quarter revenue growth in line with consensus estimates.

Revenue in the third quarter rose 37 per cent to $1.28bn, and the company said that it had incorporated an “ongoing modest impact” into its fourth-quarter results from the Apple changes, which require apps to get explicit user consent to track users to target advertising and make it harder to assess ad campaign performance.

This stood in stark contrast with Snap, which lost a quarter of its value last week after missing revenue expectations, blaming the changes to Apple’s rules.

Twitter’s monetisable daily active users — a homegrown metric that counts the number of logged-in users to whom the platform shows advertising — reached 211m, up 13 per cent year-over-year, just shy of consensus estimates.

Twitter earnings at a glance

Actual versus estimate

Revenue: $1.284bn vs $1.285bn

Net income: — $537m vs $8.25m

Earnings per share: — $0.67 vs $0.01

Source for estimates: S&P Capital IQ

Twitter posted a net loss of $537m after paying to settle a shareholder class action lawsuit and ramping up investment on its new product development plan.

Analysts had estimated the company would post a profit of $8.25m for the quarter, but it was hit by a $809.5m charge to settle a 2016 shareholder class-action lawsuit over claims that it misled investors over user engagement. Some of those costs were offset by insurance recovery, the company said.

The San Francisco-based group had also bolstered its investments in research and development and marketing in the quarter as it deepened its push into areas such as payments and ecommerce.

Nevertheless, the company warned that its revenues next year would be knocked by between $200m and $250m by the sale of MoPub, a mobile ad platform it bought in 2013, to marketing platform AppLovin, which is expected to close in the first quarter.

It said it expected to recoup the losses from MoPub’s revenues in future by reallocating resources, and said its goal of generating at least $7.5bn in revenues in 2023 remained unchanged.

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