Alphabet misses profit expectations as ad revenue tumbles

Google’s parent company Alphabet (GOOG, GOOGL) reported fourth-quarter results after the bell on Thursday, falling short of expectations for revenue and earnings per share as advertising fell year-over-year.

Here are the most important numbers from the report, compared to what Wall Street expected, as compiled by Bloomberg.

Alphabet shares fell 4.2% immediately after the report.

Google’s ad revenue fell from $61.2 billion in the fourth quarter of 2021 to $59 billion in the fourth quarter of 2022. YouTube’s ad revenue, meanwhile, missed analysts’ estimates, coming in at 7 $.9 over estimate versus $8.2 billion. Google Cloud, meanwhile, lost $830 million in the fourth quarter, better than the $1.7 billion lost in the same quarter last year.

Alphabet, like Meta (META) and Snap (SNAP), is struggling to weather a downturn in the digital advertising market. Meta CFO Susan Li Q4 told analysts on the company’s recent earnings call that revenue remained under pressure from weak advertising demand. Snap CEO Evan Spiegel, meanwhile, said ad demand hasn’t improved and hasn’t worsened significantly either.

Microsoft also reported weakness in its advertising business, Chief Financial Officer Amy Hood said during the company’s latest earnings report.

Alphabet’s results are the first since it laid off some 12,000 employees in January. CEO Sundar Pichai blamed the layoffs on Alphabet’s decision to recruit staff to meet the company’s demand during the pandemic. As people began to venture into the real world and rely less on virtual options, Alphabet had to downsize its staff.

“We have significant work underway to improve all aspects of our cost structure, in support of our investments in our highest growth priorities to drive long-term profitable growth,” the CFO said. of Alphabet, Ruth Porat, in a press release.

It’s also the first time Alphabet will report earnings since the Department of Justice (DOJ) filed an antitrust lawsuit against the tech giant over its advertising business. In its complaint, the DOJ says it wants to dismantle the advertising business of the company, which it accuses of operating at the expense of competitors and smaller advertisers.

Alphabet CEO Sundar Pichai announced that the company would lay off 12,000 workers in January. (AP Photo/Eric Risberg)

In a research note, Needham analyst Laura Martin wrote that she expects it will take 7-10 years to resolve the case, and that every business decision Alphabet makes in the interval should be subject to internal legal review.

“It involves value destruction, in addition to legal costs, regardless of the outcome,” she wrote.

The DOJ isn’t Alphabet’s only existential threat, however. In January, Microsoft (MSFT) announced it was making a multi-billion dollar, multi-year investment in developer ChatGPT OpenAI. Microsoft is already talking about adding the company’s artificial intelligence capabilities to its various cloud products, and if it can attach natural language responses to its Bing search engine, it could reduce Google Search’s market share. .

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