SAN FRANCISCO, United States —
Google parent Alphabet on Tuesday reported
quarterly earnings that fell short of market expectations as belts tightened in
the digital ad market that drives its revenue.
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Alphabet said it
made a profit of $14 billion in the third quarter on ad revenue that grew just
six percent to $69 billion when compared with the same period of last year.
Aside from one
period at the start of the
COVID pandemic, that would mark the weakest revenue
growth at Alphabet for any quarter since 2014.
“When Google
stumbles, it’s a bad omen for digital advertising at large,” said Insider
Intelligence analyst Evelyn Mitchell. “This disappointing quarter for Google
signifies hard times ahead if market conditions continue to deteriorate.”
Alphabet shares
slipped 6.8 percent to $97.35 in after-market trades that followed the release
of the earnings report.
Google’s
foundation in advertising on its heavily used search engine does give it an
advantage, however, over other ad-reliant tech firms such as Meta, Snap, and
Twitter, the analyst added.
“Over time, we’ve
had periods of extraordinary growth and then there are periods I viewed as a
moment where you take the time to optimize the company to make sure we are set
up for the next decade of growth ahead,” Alphabet and Google chief Sundar
Pichai said on an earnings call. “I view this as one of those moments.”
Alphabet chief
financial officer
Ruth Porat said the financial results in the quarter showed
“healthy fundamental growth in Search and momentum in Cloud” computing revenue,
but suffered from foreign exchange rates given the strong US dollar.
“We’re working to
realign resources to fuel our highest growth priorities,” Porat said.
Big tech firms
are grappling with multiple challenges, from inflation to the war in Ukraine,
putting pressure on earnings.
Alphabet
recruited throughout the pandemic, but announced a slowdown in hiring as ad
revenue growth cooled this year.
“Within this
slower headcount growth next year, we will continue hiring for critical roles,
particularly focused on top engineering and technical talent,” Porat said.
Many other tech
companies have decided to lay off staff, including Netflix and Twitter, or slow
the pace of hiring, such as Microsoft and Snap.
YouTube squeeze?
Worsening the financial situation for Alphabet is the fact that Google
tends not to aggressively promote advertising on its platform with tactics such
as trying to convince businesses that online marketing is a smart move during
tough economic times, said independent tech analyst Rob Enderle of Enderle
Group.
“They don’t like
the idea of making their money off advertising, so they don’t treat the market
very well,” Enderle contended. “Now, you are seeing the adverse impact of not
taking your revenue source seriously.”
The earnings report
also showed that ad revenue at YouTube was slightly lower than it was in the
same quarter a year earlier, despite a hot trend of people watching video
on-demand on the internet.
“Overall, I feel
YouTube remains in a really good position to continue to benefit from the
streaming boom,” chief business officer Philipp Schindler said during an
earnings call.
However, Alphabet
noticed a “pullback in spending” by advertisers at YouTube in the quarter,
Schindler told analysts.
“They have a ton
of competition in video, and TikTok is probably hitting YouTube pretty hard,”
Enderle said.
Netflix last week
reported that it gained subscribers in the recent quarter, calming investor
fears that the streaming giant was losing paying customers.
The company said
it ended the third quarter with slightly more than 223 million subscribers
worldwide, up some 2.4 million, after seeing subscriber ranks ebb during the
first half of the year.
The turn-around
in subscriber growth comes as Netflix is poised to debut a subscription option
subsidized by ads in November across a dozen countries.
Rival streaming platform
Disney+ is to launch ad-subsidized subscriptions in December.
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