Google and MS Soar in Q3 Earnings Amid Pandemic Boom

[Asia Economy Reporter Yujin Cho] Alphabet, Google's parent company, and Microsoft (MS) posted better-than-expected strong earnings in the third quarter of this year. The prolonged work-from-home trend and increased time spent indoors due to the COVID-19 pandemic led to a surge in non-face-to-face demand, which propelled the growth of these companies.

According to the Wall Street Journal (WSJ) and each company's IR materials on the 26th (local time), Alphabet, the world's largest search engine company, announced that its third-quarter revenue increased by 41% year-over-year to $65.12 billion. Net income surged to $21.03 billion, tripling compared to $7.1 billion in the third quarter of 2019, before the pandemic.

Both revenue and net income exceeded Wall Street expectations, marking an earnings surprise. Earnings per share were $27.99, surpassing the market estimate of $23.48 compiled by financial information provider Refinitiv, and revenue also significantly exceeded the market estimate of $63.34 billion.

This strong performance was driven by rapid growth in digital advertising revenue from search and YouTube. Advertising revenue from Google and YouTube reached $53.13 billion, a 43% increase compared to the same period last year.

Among this, YouTube revenue increased by 43% to $7.21 billion. This figure is close to Netflix's third-quarter revenue of $7.44 billion. WSJ projected that YouTube's full-year revenue would be similar to Netflix's market capitalization of $300 billion.

The expansion of net income was also contributed by the increased equity value of companies Alphabet invested in. Google, which has made equity investments through Google Ventures and CapitalG, earned $18.8 million in investment gains in the third quarter from IPOs such as Freshworks and Toast. This is more than three times the $2.6 million recorded in the same period last year.

On the same day, MS announced that its third-quarter (MS's own first quarter) net income reached a record high of $10.5 billion, a 48% increase compared to the same period last year. Earnings per share were $2.17, exceeding the analyst estimate of $2.08 compiled by FactSet.

During the same period, revenue also rose 22% to $45.3 billion, surpassing market estimates of $44 billion.

Intelligent Cloud revenue, which competes fiercely with Amazon, reached $17 billion, up 31% year-over-year, and productivity and business processes revenue, including Office software, LinkedIn, and Dynamics, rose 22% year-over-year to $15 billion.

Personal Computing revenue, which includes Windows, gaming, and search advertising, increased 12% to $17 billion despite a slowdown in PC shipments.

The record-breaking earnings of these two big tech companies reflect the surge in digital demand as remote work and online education have been prolonged due to the COVID-19 pandemic. The digitalization of daily life accelerated by COVID-19 has led to continued growth in the scale of big tech companies dominating the online and mobile markets.

Google's revenue rapidly expanded as demand for search and YouTube advertising surged, while MS significantly increased earnings by raising Office 365 prices by 10% amid growing demand.

Philip Schindler, Google's Chief Business Officer (CBO), said, "The increase in non-face-to-face consumption greatly contributed to the growth of digital advertising revenue."

According to media investment group GroupM, global digital advertising market revenue is expected to increase by 26% this year due to the impact of the COVID-19 pandemic. WSJ evaluated that this benefit went to Google, which dominates the global search and online video markets.