Google’s parent company Alphabet Inc. (NASDAQ: GOOGL) reported a sharp drop in profit for the third quarter of its fiscal year. The company reported that net income in the third quarter was $7.1 billion, or $10.12 a share, down from $9.2 billion, or $13.06 a share, in the same period the previous year. Analysts had expected earnings of $12.35 a share, on average. Revenue rose 20 percent to $40.5 billion for the third quarter, higher than the $40.32 billion analysts expected.
The company’s quarterly earnings were dented by heavy investment in cloud, artificial intelligence, and consumer hardware. It has been building data centers, buying equipment, and hiring salespeople and engineers. Google hired 6,450 employees in the third quarter, mainly for technical and sales roles in the cloud computing division. Ruth Porat, chief financial officer of Alphabet and Google, said in a statement, “We continue to invest thoughtfully in talent and infrastructure to support our growth, particularly in newer areas like cloud and machine learning.”
Google’s cloud-computing unit, which rents computing power and software services over the internet, may be the company’s biggest growth opportunity. The business currently runs a distant third in the market behind Amazon.com Inc. and Microsoft Corp., but is gaining steam. In July, Google said it expected the unit to pull in $8 billion in revenue this year.
Google’s “other revenue” unit, which includes hardware like its Pixel phones and cloud products, came in at $6.43 billion, higher than analysts’ expectations of $6.32 billion. Last quarter, the unit brought in $6.18 billion. In the same period a year ago, the unit’s revenue was $4.64 billion.
Advertising continues to sustain Alphabet’s bottom line. Google’s ad revenue rose 17 percent from the year ago quarter to $33 billion, excluding payments to distribution partners. The average estimate was for ad revenue of $32.72 billion. According to research firm eMarketer, roughly one-third of all global digital advertising spending now flows through the company.