Google shares slip after sales miss as advertising demand slows

Google shares slip after sales miss as advertising demand slows
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(Feb 3): Google parent Alphabet Inc. reported fourth-quarter results that narrowly missed analysts’ expectations, signaling lower demand for its search advertising during an economic slowdown.

Sales, excluding partner payouts, were US$63.1 billion in the fourth quarter, the company said on Thursday in a statement. Analysts had projected US$63.2 billion, according to data compiled by Bloomberg. Shares fell more than 3% in extended trading.

The lackluster results come as Google’s core advertising business is under threat on multiple fronts. The US Department of Justice has called for a breakup of the search giant’s ad-technology business over alleged illegal monopolization of the market. And the company’s flagship search business, which drives most of its ad revenue, may be under attack from new entrants. Google last year declared a “code red” in response to Open AI’s popular chatbot, ChatGPT.

Alphabet chief executive officer Sundar Pichai put artificial intelligence front-and-center in his discussion of results, and said the company plans to change the way it reports certain AI activities. Starting this year, DeepMind, a division focused on AI research, will be included in Alphabet’s corporate costs to reflect how the technology is being incorporated into other businesses — rather than as part of “Other Bets”, Alphabet said.

“I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond,” Pichai said in a statement on Thursday. Google will make artificial intelligence-based large language models like LaMDA available “in the coming weeks and months,” he added in his commentary to analysts. Users will soon be able to use language models “as a companion to search”.

The company has acknowledged the challenges it faces with an increased commitment to efficiency. In January, Alphabet slashed 12,000 jobs, or 6% of its global workforce — the largest job cuts in its history. “We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” Pichai said.

Other major tech firms have done cuts at a similar scale. Meta Platforms Inc, in a call with investors Wednesday after reporting a quarterly sales decline, also promised a leaner, more efficient organisation. 

Google’s ad results align with what its peers are seeing. Executives at Snap Inc and Meta, despite reporting quarterly revenue declines, were cautiously optimistic about a return to growth on the horizon for online advertising.

In the fourth quarter, Google said profit was US$1.05 per share, compared to Wall Street’s US$1.20 per share estimate.

The results were mixed across Alphabet’s sprawling portfolio. Search and other related businesses, Google’s flagship, generated fourth-quarter sales of US$42.6 billion, compared with analysts’ average estimate of US$43.3 billion.

YouTube reported ad sales of US$7.96 billion, compared with Wall Street’s estimate of US$8.3 billion. The division is among the most susceptible to marketers’ pullback in spending. 

“YouTube’s poor performance is a bit of an eyesore,” said Evelyn Mitchell, an analyst with Insider Intelligence. The business has had “rough go of things,” she added, as the app competes for attention with ByteDance Ltd’s wildly popular TikTok, while navigating new ad privacy restrictions on iPhones.

Google’s closely watched cloud unit posted a loss of US$480 million, better than analysts’ projections for a loss of US$862 million. Although the business has yet to turn a profit and trails cloud-computing rivals Inc and Microsoft Corp, the effort is viewed as one of the tech company’s best bets for growth as its search business matures. The unit generated US$7.3 billion in sales, in line with analysts’ estimates.

Alphabet’s Other Bets — a hodgepodge of nascent companies including the self-driving company Waymo and life sciences unit Verily — brought in US$226 million in fourth-quarter revenue while losing US$1.63 billion. In January, before the larger job cuts enacted by the tech giant, Verily cut 15% of its staff as it eliminated some programs and streamlined operations.

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