Google Roars Back To Recovery With Strong Third Quarter 2020 Revenue

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Google's parent company Alphabet Inc has released its earnings report for the third quarter of 2020 today. The release is a crucial one as it relates to the quarter that shows how Google has managed to recover after the company's revenue and operating income fell during the second quarter of this year in the aftermath of sharp drops in spending all over the globe.

For its third quarter, Google has reported $46 billion in revenue, $11 billion in net income and $16.40 in diluted earnings per share beating analyst estimates. These estimates had pegged the company to bring in ~$43 billion in revenue and ~$11.37 in earnings per share.

Google's Recovery In Third Quarter Comes On The Back Of Recovery In Search and Advertising Income

The key tenets of Google's recovery during this quarter come from the company's core businesses. In its second quarter, the company's revenue from Google Search, YouTube advertisements and other properties fell sequentially and year-over-year all across the board except for YouTube advertisements, which witnessed a slight year-over-year increase. This resulted in an overall drop in revenue and in operating income, with the results exhibiting the effects of a global economic slowdown.

In its latest quarter, the company has reversed all of these trends. Google's $46 billion revenues come at the back of the company's strong performance in Search, YouTube and other properties. Segment-wise, the company earned $26 billion through Search, $5 billion through YouTube and $6 billion through its members.

These mark year-over-year and annual growths, as in the previous quarter the company earned $21 billion through Search, ~4 billion through YouTube and ~$5 billion through member properties. Furthermore, during its year-ago quarter, the company had brought in ~$25 billion through Search, ~$4 billion through YouTube and $5 billion through members.

Supplemental information from Alphabet's earnings highlighting its recovery in major segments. Image: Alphabet Inc

Traffic Acquisition Costs (TAC) which are what Google spends to attract traffic also increased during the quarter, which is a natural byproduct of an increase in revenues. They had dropped in Google's second-quarter, as the search engine giant witnessed little spending enthusiasm from companies during an economic crunch.

Microsoft Corporation's Azure cloud computing platform showed impressive growth during the company's latest quarter, and Google's Google Cloud also mirrors this but remains small in terms of overall contribution to the company's revenue pie. Revenues for Cloud grew 44% year-over-year during the third quarter, and they grew 15% sequentially for the same time period.

In a major positive sign for Google, the company's operating income (separate from Alphabet's operating income) recovered both sequentially and year-over-year. Google brought in $12.6 billion in income after operational costs had been accounted for. This marks a ~$6 billion gain in the metric over the company's second-quarter and a ~$1.5 billion gain year-over-year.

Google's chief financial officer Ms. Ruth Porat acknowledged the growth in Search and Advertising in her statement. According to the executive:

“Total revenues of $46.2 billion in the third quarter reflect broad based growth led by an increase in advertiser spend in Search and YouTube as well as continued strength in Google Cloud and Play. We remain focused on making the right investments to support long term sustainable value.”

Investors were also appreciative of Google's recovery, with the parent group Alphabet's Class C shares jumping by 5% and Class A shares jumping by 6% in aftermarket trading. Google's recovery is a positive sign for the digital advertising and retail industry, with earnings from, Inc also demonstrating big year-over-year gains in top and bottom line profit.