Alphabet shares slide on disappointing Google ad revenue

Alphabet shares slid more than 6% in extended trading on Tuesday after the company reported ad revenue that missed analysts’ estimates.

Here are the key numbers:

• Earnings per share: $1.64 vs. $1.59 expected by LSEG, formerly known as Refinitiv.
• Revenue: $86.31 billion vs. $85.33 billion expected by LSEG.
• Google Cloud: $9.19 billion vs. $8.94 billion expected, according to StreetAccount.
• YouTube ads: $9.2 billion vs. $9.21 billion expected, according to StreetAccount.
• Traffic acquisition costs: $13.9 billion vs. $14.1 billion, according to StreetAccount.

Alphabet reported its fastest quarter for revenue growth since early 2022, with sales climbing 13% from $76.05 billion a year earlier, the company said in a statement. However, ad revenue of $65.52 billion trailed analysts’ estimates of $65.94 billion, according to StreetAccount.

YouTube, which has been helping to drive accelerated growth, came in just shy of expectations.

The results, while generally above estimates, weren’t enough to satisfy investors, who pushed the stock to fresh highs last week. Facebook’s ad business is growing faster, and TikTok represents an ongoing competitive threat as younger users turn to the app to create short viral videos.

Google Cloud remains a growth engine, with 26% expansion in the fourth quarter compared to a year ago. The company is also drawing profit from the cloud business, which was losing money for years as it tried to keep up with Amazon Web Services and Microsoft Azure. Operating income in the fourth quarter was $864 million, following a year-ago loss of $186 million.

Across Alphabet, CEO Sundar Pichai continues to focus on investments in artificial intelligence and embedding new generative AI tools into more of Google’s key products. To get there, Pichai has said the company has to make cuts elsewhere, meaning more layoffs on top of last year’s 12,000 cuts, which amounted to roughly 6% of its full-time workforce.

“We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud,” Pichai said in Tuesday’s press release. “Each of these is already benefiting from our AI investments and innovation.”

In December, Google launched the large language model called Gemini, which it considers its largest and most capable AI model to date. The company is planning to license Gemini to customers through Google Cloud for them to use in their own applications. 

Alphabet said due to the workforce reductions last year, the company recorded severance and related charges of $2.1 billion for 2023. Additionally, Google exited some of its offices, resulting in charges of $1.2 billion for the quarter and $1.8 billion for the year.

Alphabet Chief Financial Officer Ruth Porat said on the earnings call that severance-related expenses in the first quarter will be about $700 million.

Net income jumped 52% in the fourth quarter to $20.7 billion, or $1.64 per share, from $13.6 billion, or $1.05 per share, a year earlier. Operating margin, the profit left after subtracting costs to run the business, expanded to 27% from 24%.

Other Bets, which includes the Waymo self-driving car business and the Verily life sciences unit, reported revenue of $657 million, up from $226 million the year prior. Its loss narrowed to $863 million from $1.24 billion.

Alphabet shares are up 56% in the past year, not including the after-hours drop. Shares of Meta and Microsoft have also reached fresh highs as investors continue to pour into tech stocks.

Microsoft reported better-than-expected financials on Tuesday but it’s stock price also fell following the announcement. Amazon, Apple and Meta are scheduled to release results Thursday.

— CNBC’s Jennifer Elias contributed to this report.

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