Alphabet misses on top and bottom lines as YouTube ad revenue drops in the quarter

Alphabet shares dropped more than 5% in extended trading on Tuesday after the company reported weaker-than-expected earnings and revenue for the third quarter.

• Earnings per share (EPS): $1.06 vs. $1.25 expected, according to Refinitiv estimates.
• Revenue: $69.09 billion vs. $70.58 billion expected, according to Refinitiv estimates.
• YouTube advertising revenue: $7.07 billion vs $7.42 billion, according to StreetAccount estimates.
• Google Cloud revenue: $6.9 billion vs $6.69 billion, according to StreetAccount estimates
• Traffic acquisition costs (TAC): $11.83 vs $12.38, according to StreetAccount estimates

Revenue growth slowed to 6% from 41% a year earlier as the company contends with a continued downdraft in online ad spending. Other than one period early in the pandemic, it’s the weakest period for growth since 2013.

YouTube ad revenue slid about 2% to $7.07 billion from $7.21 billion a year ago. Analysts were expecting an increase of about 3%. Alphabet reported overall advertising revenue of $54.48 billion during the quarter, up slightly from the prior year.

The report marks an ominous start to Big Tech earnings week for investors focused on the digital ad market. Last week, Snap issued disappointing results and said it was unable to provide a forecast given the volatility in spending and concerns about the economy. Snap plummeted 28% on Friday following the numbers. Meta is scheduled to report results on Wednesday, and analysts are expecting a second straight quarter of declining revenue.

Prior to the after-hours drop, Alphabet shares were down 28% for the year, slightly underperforming the Nasdaq.

Alphabet’s top executives referenced the challenges the company faces at the top of Tuesday’s earnings release. CEO Sundar Pichai said in the statement that the company is “sharpening our focus on a clear set of product and business priorities,” while Ruth Porat, the finance chief, said “we’re working to realign resources to fuel our highest growth priorities.”

During the quarter, Google Cloud brought in $6.9 billion — more than analysts expected. That’s a notable increase from $5 billion the year prior. Losses in Google Cloud widened to $699 million from $644 million the year prior.

Pichai enacted some cost-cutting measures across the company, citing economic challenges, including a potential recession, soaring inflation, rising interest rates and tempered ad spending. In September, Pichai said he wanted to make the company 20% more efficient, which could include slashing jobs and product cuts.

Google also canceled the next generation of its Pixelbook laptop and cut funding to its Area 120 in-house incubator. And last month, Google said it would be shuttering its digital gaming service Stadia.

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