Google parent Alphabet hit by advertising slump as sales miss estimates, but cloud losses narrow
- Alphabet had $57.27 billion in third quarter sales, less than expected, as a slowdown in online advertising spreads from social media to search
- One bright spot is Google’s cloud service, which trails Amazon and Microsoft, with losses less than expected at US$699 million
Google’s advertising juggernaut, which had largely dodged the digital-ad slowdown that hit rivals earlier this year, is no longer immune. Alphabet said third-quarter sales, excluding payments to distribution partners, were US$57.27 billion. That compared with the average analyst projection for US$58.18 billion.
Net income was US$1.06 per share, less than Wall Street’s estimates for US$1.25 per share. Shares fell more than 6 per cent in post-market trading.
Alphabet chief executive officer Sundar Pichai said the company was “focused on moderating operating expense growth”. Chief financial officer Ruth Porat, meanwhile, said she expected headcount additions to fall by more than half in the fourth quarter compared with the previous period.
“As we plan for 2023, we’ll continue to make important trade-offs where needed,” Pichai said. “Throughout Google’s history, periods of dedicated focus have enabled us to emerge strongly.”
Shares fell as low as US$96.71, after closing at US$104.48 in New York.
There were disappointing results across Alphabet’s sprawling portfolio. Search and other related businesses, the company’s financial engine, generated third-quarter sales of US$39.54 billion, compared with analyst estimates of US$40.87 billion. Philipp Schindler, Google’s chief business officer, said some advertisers have begun to trim spending.
Google’s YouTube missed the mark by an even wider margin, reporting ad sales of US$7.07 billion, compared with analysts’ average estimate of US$7.47 billion.
“Google needs to salvage stronger growth from YouTube to keep its head above the water,” said Evelyn Mitchell, an analyst with Insider Intelligence. “Being wholly reliant on how search performs, that’s not a good place to be.”
Alphabet’s Other Bets – a collection of nascent companies that includes self-driving car company Waymo and life sciences unit Verily – saw US$209 million in revenue on losses of US$1.61 billion. In September, Verily, which has experimented with diabetes-detecting contact lenses and launched Covid-19 testing programmes, said it raised US$1 billion in new investments led by its parent company.
While Google has taken steps to control costs during the economic downturn, it will take time for the company to see the benefits, said Tejas Dessai, a research analyst at Global X ETFs.
“It’s a big company – it will take some time to trim fat,” he said.