Google stocks slide after missed sales as ad demand slows

(Bloomberg) – Google parent Alphabet Inc. reported fourth-quarter results that narrowly missed analysts’ expectations, indicating lower demand for its search advertising amid a slowing economy.

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Revenue excluding affiliate payouts was $63.1 billion in the fourth quarter, the company said in a statement Thursday. Analysts had expected $63.2 billion, according to Bloomberg. Shares fell more than 6% in extended trading.

The lackluster results come as Google’s core advertising business is under threat on multiple fronts — and not just because of the slowing economy. The US Department of Justice has called for the search giant’s advertising technology business to be wound up over alleged illegal market monopolization. And the company’s flagship search business, which generates the majority of its advertising revenue, could be under attack from new entrants. Google last year declared a “Code Red” in response to Open AI Inc’s popular chatbot, ChatGPT.

Alphabet chief executive officer Sundar Pichai put artificial intelligence at the center of his discussion of the findings, saying the company plans to change the way certain AI activities are reported. Starting this year, DeepMind, a division focused on AI research, will be included in Alphabet’s corporate expenses to reflect how the technology will be integrated into other companies — rather than as part of “other bets,” Alphabet said.

“I’m excited about the AI-driven jumps we’re going to unveil in Search and beyond,” Pichai said in a statement Thursday. “We are on an important path to sustainably overhaul our cost structure and build financially sustainable, dynamic and growing businesses across Alphabet.”

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The company has recognized the challenges facing the company with an increased commitment to efficiency. In January, Alphabet cut 12,000 jobs, or 6% of its global workforce — the largest job cuts in its history. Other big tech companies have made similar cuts. Meta Platforms Inc. also pledged a leaner, more efficient organization in a call to investors Wednesday after it reported quarterly revenue declines.

Google’s ad results match what its competitors are seeing. Snap Inc. and Meta executives were cautiously optimistic about a long-term return to growth for online advertising on the horizon, despite reports of quarterly revenue declines.

Earnings were $1.05 per share, compared to Wall Street’s estimate of $1.20 per share.

Results across Alphabet’s expansive portfolio have been mixed. Search and other related businesses, Google’s flagship product, had revenue of $42.6 billion in the fourth quarter, compared to analysts’ average estimate of $43.3 billion.

YouTube reported $7.96 billion in ad sales, compared to Wall Street’s estimate of $8.3 billion. It’s one of the areas most vulnerable to the decline in marketers’ spending. The app also competes with the hugely popular TikTok by ByteDance Ltd. for attention while navigating new privacy restrictions on advertising on iPhones.

Google’s closely-watched cloud unit lost $480 million, beating analysts’ forecasts of an $862 million loss. Though the company is yet to turn a profit and lags behind cloud computing rivals Amazon.com Inc. and Microsoft Corp. lags behind, the tech company’s efforts are seen as one of the tech company’s top growth opportunities as its search business matures. The unit generated $7.3 billion in revenue, in line with analyst estimates.

Alphabet’s Other Bets — a hodgepodge of emerging companies including self-driving company Waymo and life sciences unit Verily — brought in $226 million in fourth-quarter revenue and lost $1.63 billion. In January, ahead of the tech giant’s major downsizing, Verily shed 15% of its staff as it eliminated some programs and streamlined operations.

–Assisted by Julia Love.

(Corrects number for cloud loss)

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