Alphabet misses on earnings expectations, as ad revenue falls

Google parent Alphabet (GOOG, GOOGL) announced its Q4 earnings after the bell on Thursday, falling short of expectations on revenue and earnings per share, as advertising declined year-over-year.

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

  • Revenue (ex-TAC): $63.12 versus $63.2 billion expected

  • Earnings per share: $1.05 versus $1.18 expected

Alphabet shares were down 4.2% immediately following the report.

Google's ad revenue fell from $61.2 billion in Q4 2021 to $59 billion in Q4 2022. YouTube ad revenue, meanwhile, missed analysts' estimates, coming in at $7.9 vs estimate versus $8.2 billion. Google Cloud, meanwhile, lost $830 million in Q4, better than the $1.7 billion it lost in the same quarter last year.

Alphabet, like Meta (META) and Snap (SNAP), is working to overcome a slowdown in the digital advertising market. Meta CFO Susan Li Q4 told analysts during the company's recent earnings call that revenue remained under pressure from weak advertising demand. Snap CEO Evan Spiegel, meanwhile, said that advertising demand hasn't improved by hasn't gotten significantly worse, either.

Microsoft also reported weakness in its advertising business, CFO Amy Hood explained during the company’s latest earnings report.

Alphabet’s results are its first since it laid off some 12,000 employees in January. CEO Sundar Pichai blamed the layoffs on Alphabet’s decision to staff up to meet the company’s demand during the pandemic. As people started venturing back into the real world and relied less on virtual options, though, Alphabet needed to cut 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 deliver long-term, profitable growth," Alphabet CFO Ruth Porat said in a statement.

This is 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 break up the company’s ad business, which it accuses of operating at the expense of smaller rivals and advertisers.

Google CEO Sundar Pichai delivers the keynote address of the Google I/O conference, Wednesday, May 17, 2017, in Mountain View, Calif. Google provided the latest peek at the digital services and gadgets that it has assembled in the high-tech tussle to become an even more influential force in people's lives. (AP Photo/Eric Risberg)
Alphabet CEO Sundar Pichai announced the company was laying off 12,000 workers in January. (AP Photo/Eric Risberg)

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

“This implies value destruction, in addition to legal expenses, regardless of the outcome,” she wrote.

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

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