Google revenue

Alphabet misses out on revenue as YouTube’s advertising business is slowed by war in Ukraine

April 26 (Reuters) – Google’s parent company Alphabet Inc (GOOGL.O) on Tuesday reported first-quarter revenue below expectations as YouTube largely missed Wall Street targets and ad sales in the together have been under pressure due to the war in Ukraine and supply chain and inflation concerns.

The war in Ukraine that began in the quarter had an “outsized impact” on YouTube revenue as the company halted ad sales in Russia and brand advertisers, particularly in Europe, cut spending , Alphabet chief financial officer Ruth Porat told analysts.

She also reported moderate growth in sales to direct-response advertisers on YouTube, and she added that app store fee reductions to address competition issues had wiped out subscription revenue gains.

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The world’s largest provider of search and video ads has been a big winner in the shift to online commerce over the past two years, but war and the latest economic phase of the pandemic pose new challenges.

Google globally made 1% of its sales in 2021 in Russia, Porat said.

Some advertisers are rethinking ad spending amid high interest rates, higher transportation costs and shortages of products ranging from sofas to cars to infant formula, analysts said.

Alphabet shares were down 4.9% in after-hours trading.

“Alphabet has been considered one of the most isolated companies in the advertising space compared to its peers, but sometimes you can still own the best house in the worst neighborhood,” said David Wagner, portfolio manager at Aptus Capital Advisors.

YouTube ad sales of $6.9 billion missed Wall Street’s target of $7.5 billion, according to FactSet.

Alphabet said first-quarter sales were $68.01 billion, 23% higher than a year ago but below the average estimate of $68.1 billion among financial analysts tracked by Refinitiv, its first failure since the fourth quarter of 2019 before the pandemic. Alphabet’s total costs also increased by 23%.

Analysts said Google’s ad sales were broadly in line with expectations, but YouTube’s ad growth was below expectations. Cloud sales grew at a slower pace than a quarter ago, and Google’s “other” revenue, which includes app, hardware and subscription sales, was 6.8 billion, below estimates of $7.3 billion.

Last week, Snap Inc (SNAP.N) warned that inflation, labor shortages and other economic challenges could put pressure on ad revenue.

Facebook’s parent company, Meta Platforms Inc (FB.O), the second-largest online advertising platform with an expected global market share of 21.4% in 2022, released its results on Wednesday. Its shares fell 3.3% on Tuesday after Alphabet’s results.

Google is expected to grab 29%, or the top share, of the $602 billion global online advertising market in 2022, at least the 12th consecutive year it has led the way, according to Insider Intelligence.

Product changes by Google to address antitrust issues and growing competition from companies such as Inc (AMZN.O) and ByteDance’s TikTok are reducing ad sales. Google also cut its advertising and other service offerings in Russia following the invasion of Ukraine in the first quarter. Read more

Still, travel and entertainment advertisers are picking up steam, and it’s better positioned than its competitors to weather economic shocks, as Google’s advertising tools tend to be among the last abandoned by advertisers because they’re well known, easy to use and reach more users than the alternatives. .

Quarterly profit was $16.44 billion, or $24.62 per share, missing expectations of $25.76 per share.

Although Alphabet shares are down more than 17% this year since Tuesday, they are up nearly 90% in the past two years.

Alphabet has repurchased more than $81 billion in stock over the past two years and said Tuesday its board had authorized an additional $70 billion in buybacks.

Topping the list of risks the company faces are numerous lawsuits and investigations aimed at determining whether Google has engaged in anticompetitive behavior through its advertising and other activities.

The latest scrutiny focused on its pending $5.4 billion acquisition of cybersecurity services provider Mandiant, which the US Department of Justice is closely scrutinizing. Google said it still expects to close the deal this year. Read more

Google Cloud, the unit that would contain Mandiant, grew its first-quarter revenue 44% from a year ago to $5.82 billion.

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Reporting by Nivedita Balu in Bengaluru and Paresh Dave in Oakland, California. Editing by Sriraj Kalluvila, Peter Henderson and Matthew Lewis

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