Google parent Alphabet Inc. reported fourth-quarter results that narrowly missed analysts’ expectations, signaling lower demand for its search advertising during a slowing economy.
Sales, excluding partner payouts, were $63.1 billion in the fourth quarter, the company said Thursday in a statement. Analysts had projected $63.2 billion, according to data compiled by 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 slowed economy. The U.S. Department of Justice has called for a breakup of the search giant’s ad-technology business over alleged illegal monopolization of the market. And the company’s flagship search business, which drives most of its ad revenue, may be under threat 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 front-and-center in his discussion of results, and said the company plans to change the way it reports certain AI activities. Starting this year, DeepMind, a division focused on AI research, will be included in Alphabet’s corporate costs to reflect how the technology is being incorporated into other businesses — rather than as part of “Other Bets,” Alphabet said.
“I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond,” Pichai said in a statement Thursday. “We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet.”
The company has acknowledged the challenges it faces with an increased commitment to efficiency. In January, Alphabet slashed 12,000 jobs, or 6% of its global workforce — the largest job cuts in its history. Other major tech firms have done cuts at a similar scale. Meta Platforms Inc., in a call with investors Wednesday after reporting a quarterly sales decline, also promised a leaner, more efficient organization.
Google’s ad results aligns with what its peers are seeing. Executives at Snap Inc. and Meta, despite reporting quarterly revenue declines, were cautiously optimistic about a return to growth on the horizon for online advertising long-term.
Profit was $1.05 per share, compared to Wall Street’s $1.20 per share estimate.
The results were mixed across Alphabet’s sprawling portfolio. Search and other related businesses, Google’s flagship business, generated fourth-quarter sales of $42.6 billion, compared with analysts’ average estimate of $43.3 billion.
YouTube reported ad sales of $7.96 billion, compared with Wall Street’s estimate of $8.3 billion. The division is among the most susceptible to marketers’ pullback in spending. The app is also competing for attention with ByteDance Ltd.’s wildly popular TikTok, while navigating new ad privacy restrictions on iPhones.
Google’s closely watched cloud unit lost $480 billion, better than analysts’ projections for a loss of $862 million. Although the business has yet to turn a profit and trails cloud-computing rivals Amazon.com Inc. and Microsoft Corp., the effort is viewed as one of the tech company’s best bets for growth as its search business matures. The unit generated $7.3 billion in sales, in line with analysts’ estimates.
Alphabet’s Other Bets — a hodgepodge of nascent companies including the self-driving company Waymo and life sciences unit Verily — brought in $226 million in fourth-quarter revenue while losing $1.63 billion. In January, before the larger job cuts enacted by the tech giant, Verily cut 15% of its staff as it eliminated some programs and streamlined operations.
