Cloud computing again helped drive much higher-than-expected revenue in Alphabet Inc.’s first-quarter results reported today, but advertising really stole the show this time.

The parent company of Google LLC earned a profit of $17.9 billion, or $26.29 a share. That was up nearly threefold from a year ago, setting a new record high for quarterly sales as people quickly shifted to buying more online and advertisers followed them.

Gross revenue excluding traffic acquisition costs of $9.71 billion rose 34%, or 32% in constant currency, to $55.3 billion, and net revenue rose to $45.6 billion.

The results blew away forecasts. Analysts from FactSet had forecast a $10.7 billion or $15.70-a-share adjusted profit on gross revenue of $51.5 billion and net revenue of $43.1 billion.

Much of the upside came from a resurgence in advertising on search results and YouTube. The results come a year after the budding COVID-19 pandemic tanked business spending across the board, including advertising — especially for activities such as travel and in-store shopping that went into near-shutdown in early 2020. Ad revenue rose 32%, to $44.7 billion. YouTube led the upside, with revenue up nearly 50% from a year ago, to just over $6 billion.

The results bode well for upcoming earnings reports Wednesday from Facebook, which largely makes money from advertising, and Thursday from Amazon.com Inc., which has not only a huge retail business but the leading cloud business and a surging ad business as well.

Despite the loud ad results, cloud computing provided a noticeable boost to Alphabet as well, even though it’s still a small portion of its revenue, and both Alphabet Chief Executive Sundar Pichai (pictured) and Chief Financial Officer Ruth Porat called out cloud results in prepared remarks.

“We continue to see strong performance across both Google Cloud Platform and Workspace,” Pichai said on an analyst conference call. He added that GCP, its infrastructure unit, is growing “meaningfully” more than cloud overall.

Cloud revenue jumped 46%, to $4.05 billion, matching analysts’ average forecast. Even more promising, Google Cloud’s operating loss fell sharply, to $974 million from $1.73 billion a year ago.

In the fourth quarter, operating margins for Google Cloud had come in much lower than analysts had forecast because of higher costs of building data centers and hiring salespeople, and its $1.2 billion operating loss for the quarter came as a surprise given the high profitability of Amazon.com Inc.’s much larger cloud unit.

Porat had said in February that the loss could rise in the first quarter, then moderate the rest of the year, but that didn’t happen. Part of the reason, Porat detailed on the conference call, was the lapping of unusually high allowances for credit losses early last year, plus lower depreciation expense because of a change in assumed useful life of equipment. 

Alphabet’s shares rose nearly 5% in after-hours trading. The stock, which fell a little under a percentage point, to $2,290.98 a share, in regular trading before the report, had risen about 20% since it reported fourth-quarter earnings on Feb. 2, and it was up a stunning 80% in the last 12 months.

Several investment firms had already raised their estimates and target prices recently in anticipation of better-than-forecast results. But investors no doubt were also cheered by the announcement today that Alphabet’s board approved the repurchase of up to an additional $50 billion in stock, which can raise the stock price over time.

“Google had an absolute monster quarter with ads leading the way with an incredible 32% revenue improvement,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “YouTube grew an eye-watering 49% year over year, which I attribute to increased YouTube viewing and increased YouTube TV subscribers.”

Moorhead noted the contribution of cloud revenue as well. “While it’s unclear what is driving that cloud growth, I have been impressed with its verticalization of all of its IaaS, platform-as-a-service and software-as-a-service offerings,” he said, in reference to Google focusing on several industry verticals such as retail and finance.

Despite its relatively small profile at Alphabet overall, the company considers cloud computing a core business under Google Cloud CEO Thomas Kurian. Despite a formidable cloud computing infrastructure for its own massive operations, it still trails far behind leader Amazon Web Services Inc. and Microsoft Corp.’s Azure and related cloud software offerings.

“They’ve still got substantial ground to catch up versus AWS and Microsoft Azure, but moving to establish separation from Oracle and other providers,” said Nucleus Research analyst Daniel Elman. “Increasingly we have seen customers looking to move off of Amazon to control costs or due to competitive concerns – not to say they aren’t still growing rapidly, but when customers do leave for another provider it’s often due to one of those two factors – so there is room in the marketplace for a competitive option to rival Microsoft for that business.”

Elman added that Nucleus is increasingly seeing Google Cloud as a viable solution in the enterprise. “As it proves capability and gains additional deployments at enterprise scale from reputable brands as it is, it accelerates winning additional enterprise deals, so we’d expect to see the rate of the cloud segment revenue growth continuing to increase,” he said.

Indeed, Kurian has been touting multibillion-dollar cloud deals, the most recent on Monday an eight-year deal with Univision Communications Inc., which included services from YouTube and its search business.

That “bundling,” however, has drawn the attention of lawmakers and regulators in the federal government and some states, which have also launched a number of antitrust probes in the past year. Google maintains it’s working in a competitive environment in which users and partners have plenty of other choices.

Elman said data and analytics, thanks to homegrown technologies such as BigQuery and acquisitions such as Looker, provides another differentiator for Google, including its cloud services. “Increasingly we see customers looking at unifying their data/analytics onto a single integrated platform,” he said. “As we see Looker growing and Google Cloud Platform adoption growing, it follows that Google could be positioning itself to make a significant move in this space as well. If it were able to establish a differentiated analytics presence, it would serve as demand gen to further accelerate GCP adoption.”

Indeed, that differentiation could make a meaningful difference in Google Cloud’s prospects, said Nick McQuire, chief of enterprise research at CCS Insight. “What we’re seeing emerge is some real differentiation for Google Cloud’s business, particularly in areas such as industry vertical go-to-market and – above all – data transformation, analytics and machine learning,” he said. “Where Google Cloud has real credibility is with companies looking to transform their business models with higher level cloud services. While it’s still a challenger in the market, opportunities abound for Google Cloud to gain market share and push ahead of other competitors.”

Google also faces regulatory and other headwinds in its advertising business. In particular, it has proposed a new system to replace third-party cookies, bits of code that can track people’s online behavior to deliver personalized ads. But multiple browser makers, including the Mozilla Foundation, have indicated that they don’t currently plan to adopt its so-called FLoC system.

Alphabet’s “Other Bets” segment, which includes its autonomous-vehicle unit Waymo and its health technology operation Verily, lost $1.15 billion on revenue of $198 million.

Photo: Robert Hof/SiliconANGLE