Internet giant Alphabet, owner of Google reported worse than expected third quarter earnings after the close Tuesday. $GOOG total growth of 6% was the weakest period of expansion since 2013, other than one period during the pandemic. Google advertising, which includes search and YouTube ads again continued to lose momentum with the economy receding and uncertainty denting cloud and YouTube revenues. Revenue at YouTube actually declined when analysts were expecting growth of about 3%.
Alphabet Reported ThirdQuarter Earnings After the Close Tuesday
$1.06 Missed $1.25 EPS Forecast and $69.09B Missed $70.58 billion Forecast
Conference call: 4:30 p.m.
Earnings
Highlights
Alphabet Q3 22 Earnings
- EPS: $1.06 (exp $1.25)
- Operating Income: $17.14B (exp 19.71B)
- Revenue: $69.09 billion vs. (exp $70.58)
- Google Ad Revenue: $54.48B (exp $56.98B)
- YouTube Ad Revenue: $7.07 billion vs (exp $7.42B)
- Google Cloud Revenue: $6.87B vs (exp $6.69B)
- Traffic acquisition costs (TAC): $11.83 vs (exp $12.38)
- $GOOG $97.60 -6.88 -6.58% After Hours
Advertising
Alphabet’s advertising business has significant first party data across its various properties, including strong user intent in Search and to a lesser degree in YouTube.
- YouTube, Google’s video-streaming business, ad revenue slid about 2% to $7.07 billion from $7.21 billion a year ago. Analysts were expecting an increase of about 3%. Extending a slowdown in growth as it competes for viewers with services such as ByteDance Ltd.’s TikTok.
- Alphabet reported overall advertising revenue of $54.48 billion during the quarter, up slightly from the prior year.
- The slowdown in growth on YouTube and Google’s business brokering ads on third-party websites reflects pullbacks in spend by some advertisers.
- Philipp Schindler, chief business officer for Google, said the company saw a pullback in spend on search ads from certain areas such as insurance, loans, mortgage and cryptocurrencies.
Google Cloud
Google Cloud has become a key focus given competitors like Microsoft Azure and Amazon Web Services. Google Cloud offers a unique value proposition for enterprises given its ability to leverage consumer-related innovations (e.g., Google Maps, Google Assistant, Google Play, YouTube, Google Shopping, etc.).
- Sales in the Google Cloud division brought in $6.9 billion, more than analysts expected. That’s a notable increase from $5 billion the year prior.
- Losses in Google Cloud widened to $699 million from $644 million the year prior, reflecting Google’s heavy spending push as it attempts to catch up to its competitors.
Outlook
Cost Cutting Measures
There were cost-cutting measures across the company, citing economic challenges, including a potential recession, soaring inflation, rising interest rates and tempered ad spending. In September, Pichai said he wanted to make the company 20% more efficient, which could include slashing jobs and product cuts.
“Our actions to slow the pace of hiring will become more apparent in 2023,” Pichai said, reiterating comments from the second-quarter call. “Talent is the most precious resource,” he said.
Porat said that in the fourth quarter, “headcount additions will slow to less than half the number added in Q3.”
Google also canceled the next generation of its Pixelbook laptop and cut funding to its Area 120 in-house incubator. Last month, Google said it would be shuttering its digital gaming service Stadia.
Antitrust Issues
Google’s earnings also come as the company faces multiple antitrust lawsuits and likely a tougher regulatory environment under Biden appointees like Federal Trade Commission chair Lina Khan, as well as criticism from employees over its sexual-misconduct policies and dismantling of its AI ethics team following the departure of Timnit Gebru.
Google’s antitrust scrutiny both in the U.S. and abroad has led the company to halve its app fees to make Google’s digital store more accessible and commission fees less punitive. A bipartisan bill in the U.S. Senate, the Open App Markets Act, would force the companies’ app stores to let developers use other payment systems, potentially helping them opt out of default service fees.
The bill, announced last August, came on the heels of an antitrust lawsuit from attorneys general in 36 states and the District of Columbia that claims Google abused its power over app developers through its Play Store on Android.
Source: Google, TradersCommunity, WSJ
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