Alphabet’s first quarter results: Google Cloud makes its first profit

image of Google Cloud HQ logo | Bharti Airtel and Google Cloud join to deliver cloud solutions to India

Alphabet’s financial results for Q1 2023 show Google Cloud making a profit for the first time ever, said to be driven by ongoing customer wins, a growing partner ecosystem and generative AI advances.

Google Cloud reported revenue of $7.4bn in Q1 2023, which is a 27.5 percent increase from last year’s $5.8bn. The company has also moved from an operating income loss of $706m in Q1 2022 to a $191m gain in Q1 2023. The growth trend follows losses halving in Q4 last year.

The results come after a growth in deal volume of nearly 500 percent over the past three years, with now nearly 60 percent of the world’s 1000 largest companies on the roster as well as leading startups and millions of SMEs choosing Google Cloud. Google Cloud Partner certified practitioners have also increased by more than 15 times globally over the last four years.

Alphabet’s revenue totaled $69.79bn, a three percent increase YoY and more than the expected $68.9bn. This increase in total revenue is partly due to the shift in timing of Alphabet’s annual employee stock-based compensation awards, which led to a decrease in expenses. However, these will simply be awarded in a later quarter and will still be accounted for in the full fiscal year 2023.

Ad revenue beat analyst expectations with $54.55bn, but this was still less than the year prior. Additionally, YouTube ad revenue stayed in line with analyst expectations at $6.7bn, also declining from a year ago, down three percent. Despite beating expectations, Alphabet is still experiencing ad weakness in comparison to the previous year.

Operating expenses were $21.8bn, up 19 percent, following Google making its most extreme cuts in company history, including laying off 12,000 employees in January, which is roughly six percent of its workforce. Alphabet reported $2.6bn in charges related to the layoffs and office space reduction during the quarter.

Despite layoffs, the company stated in its earnings call that its headcount was up due to the first quarter’s advancements in AI. Google’s experimental conversational AI service, Bard was introduced earlier this year, and its PaLM model has since been added. PaLM API has been released to developers alongside its new MakerSuite tool. Organizations are now using Alphabet’s generative AI large language models across the Google Cloud platform, Google Workspace and cybersecurity offerings.

Sundar Pichai, CEO of Alphabet and Google, said: “We are pleased with our business performance in the first quarter, with search performing well and momentum in cloud. We introduced important product updates anchored in deep computer science and AI. Our North Star is providing the most helpful answers for our users, and we see huge opportunities ahead, continuing our long track record of innovation.”

Ruth Porat, CFO of Alphabet and Google, said: “Resilience in search and momentum in cloud resulted in Q1 consolidated revenues of $69.8bn, up three percent. We remain committed to delivering long-term growth and creating capacity to invest in our most compelling growth areas by re-engineering our cost base.”