Alphabet profit falls 34% as ad business slows
Google parent Alphabet has entered a period of growth plateau as economic uncertainty reverberates across Silicon Valley. Gone are the days of the pandemic boom when internet giants’ profits and headcounts soared.
Thursday, company release The company’s profit fell for the fourth time in a row due to a slowdown in digital advertising. Net income plunged 34% to $13.6 billion, missing Wall Street expectations of $15.3 billion, according to data compiled by FactSet.
The internet giant also posted sales of $76 billion in the final three months of 2022, down 1% from a year earlier, in line with analysts’ estimates.
Google has enjoyed years of skyrocketing growth as consumers spend more time and money online during the coronavirus pandemic, boosting the advertising market the company relies on. Those advantages began to wane last year, when rising interest rates and inflation prompted advertisers to rein in spending.
“We are on an important journey to redesign our cost structure in lasting ways and build a financially sustainable, A dynamic, growing business.”
On the earnings call, Pichai said the company was taking various steps to rein in expenses, including improving the financial performance of its line of Pixel phones and other gadgets, working to make its money-losing cloud unit profitable, and strengthening its video capabilities. Platform YouTube.
Alphabet shares fell 3% in after-hours trading.
One of its most notable recent cost-cutting moves has focused on its employees. After hiring 30,000 workers in the first nine months of last year, Alphabet said last month it would lay off 12,000 workers, or 6% of its workforce. The company said Thursday it expects to incur $1.9 billion to $2.3 billion in employee severance and related charges, most of which will be recognized in the current quarter.
Alphabet also expects to spend $500 million in the quarter to cut non-essential real estate as part of its spending-cutting efforts. It will also better manage supplier spending and deploy more artificial intelligence to automate some tasks and improve productivity, the company said.
Alphabet said it now has 190,234 employees, up from 186,779 in October. U.S. employees affected by the company’s layoffs will officially remain on the job until March, while the departure process for employees in other countries may take longer.
The ad retraction comes at the same time as other unwelcome developments at Alphabet. ChatGPT, the artificially intelligent chatbot built by OpenAI, debuted to much fanfare in November, sparking speculation that it could undermine Google’s dominance of the search engine. In response, Pichai announced “Code Red,” reallocating teams to prioritize AI projects.
Mr. Pichai said that in the coming months, Google would allow users to access a version of its search engine that included chatbot functionality, the news was earlier reported by The New York Times. The company will also incorporate more artificial intelligence into apps like Gmail and Docs, and its cloud unit will sell the underlying technology to other businesses, he said.
Revenue from Google’s biggest business, its search engine, fell more than 1 percent to $42.6 billion in the fourth quarter, missing analysts’ estimates of $43.3 billion.
Google has had to defend itself lately. The Justice Department sued the company last month for the second time in three years, most recently claiming that Google is abusing its position as an ad tech monopoly. The Justice Department wants to force Google to divest part of its ad tech product suite, which includes software for buying and selling ads, a marketplace for completing deals and services for displaying ads on the Internet.
The unit generated $8.5 billion in revenue in the most recent quarter, down 9% from a year earlier. Analysts had expected sales of $8.8 billion.
YouTube’s ad sales fell nearly 8 percent to $7.96 billion, missing analysts’ expectations of $8.2 billion. In October, the company reported a drop in YouTube sales, suggesting it is more vulnerable than Google to fluctuations in digital advertising.
Sales at Google Cloud, a unit that provides software and technology services to other businesses, rose 32% to $7.3 billion. Analysts estimated $7.4 billion. Google has invested billions of dollars over the years to help the division expand, but it has been losing money. It recorded a loss of $480 million in the fourth quarter.