Internet giant Alphabet, owner of Google reported worse than expected second quarter earnings after the close Tuesday. $GOOG reported the slowest quarterly sales growth in two years. Google advertising, which includes search and YouTube ads lost momentum with the economy receding and uncertainty denting cloud and YouTube revenues.
Alphabet Reported ThirdQuarter Earnings After the Close Tuesday
$1.21 Missed $1.32 EPS Forecast and $69.69B Missed$70 billion Forecast
Conference call: 4:30 p.m.
Earnings
Alphabet second-quarter revenue was $69.69 billion, up 13% from the same period last year but missed expectations by almost $190 million. Net income fell 14% to $16 billion, below the consensus estimate of analysts surveyed by FactSet. That marked the slowest rate of growth since the second quarter of 2020, when the pandemic hit demand for advertising.
Highlights
Alphabet Q2 22 Earnings
- Q2 Rev. $69.69b, Est. $70b
- Q2 Rev. Ex-Tac $57.47b, Est. $58.03b
- Q2 EPS $1.21, Est. $1.32
- Q2 Google Cloud Rev. $6.28b, Est. $6.32b
- Google Ad Rev. $56.29b, Est. $55.91b
- Operating Income $19.45b, Est. $20.33b
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, generated $7.3 billion in advertising revenue during the second quarter, extending a slowdown in growth as it competes for viewers with services such as ByteDance Ltd.’s TikTok.
- Analysts expected sales climbed 4.8% compared with the same period last year, after they rose more than 14% in the first quarter.
- The slowdown in growth on YouTube and Google’s business brokering ads on third-party websites “primarily reflects pullbacks in spend by some advertisers,” Alphabet Chief Financial Officer Ruth Porat said.
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 rose 36% from a year earlier to $6.28 billion in the second quarter.
- The business recorded an operating loss of $858 million during the quarter, reflecting Google’s heavy spending push as it attempts to catch up to its competitors.
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.
Outlook
A pullback in spending by some advertisers reflected “uncertainty about a number of factors that are challenging to disaggregate,” said Alphabet Chief Financial Officer Ruth Porat.
Google Chief Executive Sundar Pichai said this month the company would slow hiring for the rest of the year, urging employees to be “more entrepreneurial, working with greater urgency, sharper focus, and more hunger than we’ve shown on sunnier days.” A Google spokesman said last week it would pause most new hiring for two weeks so that teams can better plan staffing needs.
”As a company, when you’re in growth mode, it’s tough to always take the time to do all the readjustments you need to do,” Mr. Pichai said on an earnings call. “Moments like this give us a chance.”
Source: Google, TradersCommunity, WSJ
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