Home Online Advertising Alphabet’s Revenue Grows By Another 11%, As Retail And AI Take Center Stage

Alphabet’s Revenue Grows By Another 11%, As Retail And AI Take Center Stage

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Comic: A Brief History of Search

Alphabet’s relentless revenue growth didn’t stop for a pandemic, a global recession or a YouTube boycott – and it sure didn’t stop during Q3 2023.

The company’s earnings climbed to $76.7 billion over the past three months, up 11% from the same period last year. Profitability increased by almost $6 billion, to a total net income of $19.7 billion.

These strong revenue numbers were “led by solid growth in the retail vertical” across search and YouTube, said Google Chief Business Officer Philipp Schindler during Alphabet’s earnings call on Tuesday.

Alphabet CEO Sundar Pichai told investors that AI, retail and YouTube represent the company’s “three key priority areas for ads.”

AI on the brain

When Amazon last reported earnings in April, the AI boom was so top-of-mind with investors that advertising didn’t even get a mention – despite being a high-growth category and a core focus since Amazon first disclosed ad revenue in February 2022.

You can’t get through a Google earnings call without talking about advertising.

But AI was still the central focus for investors.

Brian Nowak of Morgan Stanley asked whether any of Google’s generative AI search products show signs of turning into sustainable, reliable revenue streams – as opposed to simply being a cool new consumer feature that doesn’t increase ad revenue, effectiveness or engagement.

Pichai compared the dynamic to YouTube, where the ad experience has grown over the years in tandem with engagement and where potential subscription revenues is a “possible path as well.”

Based on early feedback, “people are finding ads helpful [in generative AI search results] as they provide useful options to take action and connect with businesses,” Pichai said.

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Gearing up for Q4

Retail is also a hot spot for Google, as well as for the broader ad industry.

There are high expectations for a good holiday season, because Thanksgiving comes relatively early this year with an extra weekend of shopping between then and Christmas. And in addition to the “Cyber-Five” – which are the five lucrative shopping days between Thanksgiving and Cyber Monday – Schindler said to expect “many micro-peaks” throughout the month.

For example, Google plans to take a page from the Amazon playbook by displaying more shopper deals directly in search results.

But Google’s true retail ambitions converge with AI in one key place: Performance Max.

“It’s probably the ultimate example of AI in action across our ads product,” Schindler told Eric Sheridan, an analyst from Goldman Sachs, who asked about PMax’s performance during its first year of full availability. Schindler added that advertisers using PMax see 18% more conversions on average at similar costs.

Alphabet is also listening to advertiser feedback about PMax and will build new features, Schindler said.

“We’re very, very encouraged by the progress here,” he said. (“Very, very” is a testament to Google’s commitment, after a year of harsh reactions and advertisers pulling their hair out in frustration about their lack of control using the product.)

“In a market where every dollar counts,” Schindler said of the retail category, “our proven AI-powered solutions like Search and PMax are helping retailers drive reliable, strong ROI.”

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