Google Cloud delivered fourth quarter operating income of $864 million on revenue of $9.2 billion, up from $7.3 billion a year ago. Wall Street was expecting Google Cloud revenue of $8.94 billion.

Alphabet, the parent company of Google, reported fourth quarter net income of $20.69 billion, or $1.64 a share, on revenue of $86.3 billion, up 13% from a year ago. Wall Street was looking for fourth quarter earnings of $1.59 a share on revenue of $85.33 billion.

Google ended the quarter with more than 182,000 employees, down from 190,000 a year ago. The company saw fourth quarter growth across search, YouTube ads, subscriptions and devices and Google Cloud.

For 2023, Google reported net income of $73.79 billion, or $5.80 a share, on revenue of $307.4 billion.

CEO Sundar Pichai said the company was pleased with strength in search, YouTube and Google Cloud. CFO Ruth Porat noted that Alphabet is on an efficiency mission to "durably re-engineer our cost base as we invest to support our growth opportunities."

Alphabet said it spent $45.43 billion on research and development in 2023.

On a conference call with analysts, Pichai said Google Cloud is seeing strong usage of Vertex AI. "Vertex AI has seen strong adoption with the API requests increasing nearly 6x from the first half to second half last year," said Pichai. Pichai also said Duet AI was boosting productivity.

Porat said Google Cloud is seeing strong demand for its industry focused AI offerings.

Google Cloud is also building out its indirect channel. "We have nearly tripled the number of co-sell deals from 2022 to 2023. In our ecosystem, there are nearly 90,000, Google Cloud and AI enabled consultants and Accenture has teamed up with Google Cloud to create a joint generative AI Center of Excellence," said Pichai.

A few takeaways from the conference call:

  • Pichai said teams across Google are working on the next version of its Gemini model for use across the company. "By applying generative AI to search we are able to serve a wide range of information needs and answer new types of questions, including those that benefit from multiple perspectives. People are finding it particularly useful for more complex questions, like comparisons or longer queries. It's also helpful in areas where people are looking for deeper understanding, such as education or even gift ideas," said Pichai.
  • Subscription revenue for Google reached $15 billion, primarily due to YouTube Premium and Music. Google One is also boosting subscription revenue.
  • Advertisers are using and testing generative AI across the platform.
  • Google saw strong sales in retail in the fourth quarter.
  • Porat said Google will continue to become more efficient. "We will continue to invest in top technical and engineering talent," she said. "We also continue to execute to slow expense growth, improve efficiency in our technical infrastructure, streamline operations through the use of AI, increase efficiency of our spend with suppliers and vendors through our central procurement organization and optimize our real estate portfolio."