As online advertising entered a slow phase along with the overall economy and inflation taking its toll, even Alphabet Inc. couldn’t escape the downturn today reported fifth consecutive quarter of slowing revenue growth.
The parent company of advertising and cloud giant Google LLC reported that its earnings for the third quarter ended Sept. 30 fell 26% to $13.9 billion, or $1.06 per share. Sales increased just 6% — 11% at constant exchange rates — to $69.1 billion. That’s far less than the 41% growth a year ago.
Analysts had forecast earnings to fall 10% to $16.9 billion per share on revenue up 9% to $71 billion, leaving the company well below expectations. As a result, the stock fell almost 6% in immediate after-hours trading after closing down 1.9% in the regular session at $104.48 per share.
Most of Alphabet’s revenue has come from ads on Google’s search pages and YouTube, and that sector has slowed in the wake of the pandemic and an economy the Federal Reserve is trying to cool to curb inflation. For the quarter, Google’s ad sales rose just 2.5% to $54.5 billion, and YouTube ad sales, a longtime driver of the company’s ad growth, actually fell nearly 2% to $7.1 billion decline as advertisers scale back branded ads.
Google is not alone. Snap Inc. shares dropped by more than a quarter last week after it reported slowing ad sales. Facebook parent Meta Platforms Inc. is expected to report falling ad sales when it reports quarterly earnings on Wednesday.
Google Cloud revenue rose nearly 38% to $6.9 billion, a slight improvement from the previous quarter’s 36% growth. As a result, the unit beat analysts’ forecast of a 34% gain. The unit is seen as crucial for Alphabet, not only because it diversifies the company away from advertising, but because it seeks to join much larger rivals Amazon Web Services Inc., which will announce earnings Thursday, and Microsoft Corp. , which reported catching up with a slightly smaller 35% increase in Aure and other cloud revenue.
Google Cloud continues to lose money, unlike its peers. Losses have narrowed in recent quarters but rose 8.5% to $699 million in the third quarter.
In prepared remarks, the company acknowledged that it is sharpening its focus on a slightly narrower set of priorities.
“Product announcements we’ve made in the last month alone have shown this very clearly, including significant improvements to both search and cloud, powered by AI, and new ways to monetize YouTube short films,” said Chief Executive Sundar Pichai ( in the picture). “We are focused on investing responsibly for the long term and responding to the economic environment.”
Chief Financial Officer Ruth Porat also noted that “we are working to realign resources to drive our highest growth priorities.”
Jesse Cohen, a senior analyst at Investing.com, said the lack of ad revenue was noticeable because Google has been relatively isolated from issues like Apple Inc.’s ad targeting restrictions that don’t affect it.
“Google delivered a disappointing quarter, with the search giant underperforming our expectations in nearly every area of its business, most notably its core ad search segment,” said Cohen. “Once again, YouTube’s growth slowed to a crawl amid stiff competition from TikTok and other players in the video streaming space. Google’s earnings loss this quarter proves it’s not immune to the challenges facing the digital advertising industry at large.”
Still, it’s more the overall economy than problems within Google. “While Google continues to face economic challenges during this time, this is less a Google-specific concern and more a reflection of the global economy,” said Scott Sullivan, chief revenue officer at Google Marketing Platform Adserver Inc. “Google’s earnings show that the tech company still has a lot to offer despite an increasingly competitive marketplace, and we’re seeing the company place a greater focus on new shopping capabilities and digital tools that will improve brands’ ability to create stronger customer relationships.” build up.”
Google’s “other” businesses, which include Google Play apps and media and the Pixel phone line, rose a modest 2.5% to $6.9 billion, while “other bets,” which include the self-driving car Waymo and healthcare owned by Verily gained units, rising slightly to $209 million in revenue while posting a $1.6 billion loss.
Pichai said in July he would slow attitude in 2023, adding in September that employees should aim to become 20% more productive. Google also in the last month shut down its streaming video game service Stadia and also Cut spending for startup incubator Area 120. Still, Google’s headcount grew 24% year over year to 186,779.
Alphabet doesn’t provide specific details about its earnings. However, some observers said the company could do as well as anyone in the coming economic downturn. “2022 continues to be a challenging year for digital advertising as companies cut budgets, but Google continues to prioritize its first-party data and personalization strategies to differentiate in advertising,” said Sullivan of Adswerve.
More information will follow after a scheduled conference call with analysts at 2:00 p.m.
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