Alphabet revenue falls short as YouTube and TikTok battle for users
Alphabet’s first quarter revenue fell below analysts’ expectations on Tuesday, as the company confronts supply chain problems, inflation concerns, and fallout from the war in Ukraine.
In its quarterly earnings report, Google’s parent company said it had made a quarterly profit of $16.436bn, or $24.62 per share, missing expectations of $25.76 per share.
Alphabet reported a substantial miss in its YouTube segment, fueled in part by rising competition with the short form video platform TikTok and advertisers responding to high inflation rates.
“Google’s underwhelming results underline the view that the search giant is struggling with slowing revenue growth as advertisers cut back on spending due to a slowdown in consumer demand amid the current inflationary environment,” said Jesse Cohen, a senior analyst at Investing.com.
First-quarter sales for Alphabet were $68.01bn, 23% higher than last year but below the average estimate of $68.1bn among financial analysts tracked by Refinitiv. The company’s first miss since before the pandemic sent its shares falling 4% in after hours trading.
The company attributed its YouTube miss in part to the war in Ukraine. Alphabet has in recent months has suspended all monetization on YouTube channels out of Russia and suspended a number of state media outlets to combat misinformation.
In a call with investors on Tuesday, Alphabet’s chief executive officer, Sundar Pichai, said the viewership and customer base for YouTube was evolving and expressed a positive outlook for the future.
“In the long run, for me, YouTube is a place where we see users not only come for entertainment – they come to find information,” he said. “They’re coming to learn about things. They’re coming to discover, to research.”
Despite the shortfall, Google remains dominant in the online ad market. Google advertising made up 82% of Alphabet’s total revenue in 2021, and it is expected to grab 29% – the leading share – of the $602bn global online ad market in 2022. This is at least the 12th straight year Google has been on top, according to Insider Intelligence.
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Cloud sales grew at a slower pace than a quarter ago, and Google’s “other” revenue, which includes app, hardware and subscription sales, was $6.8bn, below estimates of $7.3bn.
Product changes to resolve antitrust concerns and rising competition from companies such as Amazon and TikTok are chipping away at ad sales. On Tuesday’s call, Pichai said the company’s answer to TikTok – YouTube shorts – had seen extensive growth in the past year but is still in the early phases of monetization.
Though Alphabet shares were down over 17% this year entering Tuesday, they have risen nearly 90% over the past two years. But its disappointing report comes as declines in big tech stocks sent the Nasdaq composite down 4% Tuesday, the worst drop for the tech-heavy index since September 2020.
The slump marks a departure from years of runaway success for the tech sector, which had made gangbuster gains for much of the pandemic. With interest rates set to rise as the Federal Reserve steps up its inflation fight, traders are less and less willing to pay the lofty prices they had been paying for Microsoft, Meta, and others.
The S&P 500 fell 2.8% and the Dow Jones Industrial Average lost 2.4%. Meta will report its earnings on Wednesday.