Google’s Parent Alphabet Reports Weaker-than-expected Quarterly Earnings

Google’s parent Alphabet had its shares fall by about 7 percent in Tuesday’s extended company after the company issued a weaker-than-expected earnings report for the third quarter.

The company reported earnings of $1.06 per share, less than analysts’ estimate of $1.25, according to Refinitiv. Revenue for the third quarter came in at $69.09 billion, falling below the Refinitiv estimate of $70.58 billion. Analysts had expected YouTube advertising revenue to come in at $7.42 billion, according to StreetAccount but Alphabet reported $7.07 billion for third-quarter YouTube advertising revenue. Google Cloud revenue surpassed analysts’ estimate of $6.69 billion with the $6.9 billion it generated in the third quarter. Traffic acquisition costs (TAC) stood at $11.83 for the quarter, below the estimate of $12.38, according to StreetAccount.

Revenue growth declined to 6 percent from the 41 percent reported in the same period a year ago. YouTube ad revenue declined about 2 percent to $7.07 billion from $7.21 billion reported a year ago. Analysts had expected a 3 percent increase. Overall advertising revenue for the quarter was $54.48 billion and was slightly up from what was reported in the year-ago period.

The company’s chief business officer for Google, Philipp Schindler, said that the company saw a decline in spending on search ads from segments such as loans, insurance, mortgage, and cryptocurrencies. 

The company’s top executive noted the challenges being faced by the company. In a statement, CEO Sundar Pichai said that the company is “sharpening our focus on a clear set of product and business priorities.” Chief Financial Officer Ruth Porat said that “we’re working to realign resources to fuel our highest growth priorities.”

In the third quarter, Google Cloud generated revenue of $6.9 billion, surpassing analysts’ expectations. It is also a notable increase from the $5 billion generated in the year-ago quarter. Losses in Google Cloud, however, increased to $699 million from the $644 million loss reported in the year-ago period.

The company’s CEO cited economic challenges, a potential recession, inflation, increasing interest rates, declining ad spending, etc., and said that the company has had to embark on cost-cutting measures.

Apart from the job slashes which the CEO had already announced, Google also canceled the next generation of its Pixelbook laptop and cut funding to its Area 120 in-house incubator. Last month, the company also announced that it will be shutting down Stadia, its digital gaming service. 

Alphabet said its full-time employees count now stands at 186,779, up from 150,028 last year. CEO Sundar Pichai during the earnings call on Tuesday said that additions to headcount will be significantly lower than the previous quarter.  

“Our actions to slow the pace of hiring will become more apparent in 2023,” he said. “Headcount additions will slow to less than half the number added in Q3,” CFO Ruth Porat added.