Key takeaways from Alphabet’s Q3 earnings as stock rises 4%

Alphabet stock rose in after-hours action following the close — (NASDAQ:GOOG) +4.5%, (NASDAQ:GOOGL) +4.3% — after a third-quarter earnings report that has become as important as a bellwether for the big techs leading this year’s market surge as it has for the company itself.

The company easily topped profit expectations thanks to revenues that surprised to the high side, driven by better-than-expected growth in subscriptions/platforms/devices and Google Cloud.

Core search and advertising revenues also came in better than expected, though not by as much — but they held up in the face of rising new competition from artificial intelligence start-ups.

“In Search, our new AI features are expanding what people can search for and how they search for it,” CEO Sundar Pichai said in initial reaction. “In Cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers and win larger deals. And YouTube’s total ads and subscription revenues surpassed $50 billion over the past four quarters for the first time.”

Broad sales growth

Revenue overall rose just over 15% to $88.3B, topping consensus expectations for $86.22B. Revenue excluding traffic acquisition costs (payments to partners) also came in higher than expected, at $74.55B vs. estimates for $72.9B.

That came with gains in almost every reportable segment. Google Search and other revenue rose 12% to $49.4B, and YouTube Ads rose 12% to $8.92B. Google Network recorded the only dip (to $7.55B from $7.67B), but overall Google advertising revenue gained 10% year-over-year.

The company’s subscriptions, platforms and devices business came on strong, with 28% growth to $10.7B. And Google Cloud maintained its trajectory as the second-biggest single segment, jumping 35% to $11.35B in revenues. Traffic acquisition costs rose a more modest 8.5%.

Margins improvement

Operating income did still better, though, rising 34% to $28.5B, and the company pointed to increasing focus on efficiency with improving its margins. Operating margin rose to 32%, from 28% in the year-ago quarter.

Total costs and expenses rose just under 8% to $59.75B, and a $3.2B boost to “other income” (vs. an “other expense” of $146M a year ago) lifted the bottom line.

Conference call starts at 4:30 p.m. ET.