Google sales

Alphabet revenue shows slowing sales growth on Digital-Ad Tumult

Google parent alphabet Inc.

GOOG -3.75%

recorded a slowdown in sales growth as global economic turmoil disrupted digital ad spend.

The company said first-quarter sales rose 23% year-over-year, the lowest rate for the tech giant since the end of 2020. In the meantime, the company saw a period of massive sales growth, as companies large and small flocked to the advertising market seeking to win over customers who spent the early period of the pandemic sequestered at home. The company’s sales grew 41% last year.

Rising inflation, supply chain disruptions, Russia’s war on Ukraine and other factors have weighed on the economic outlook and, analysts say, corporate appetite to spend in advertising. Instantaneous Inc.

said last week that these pressures had affected its financial results in the last quarter and could harm the advertising market in the future.

Russia’s assault on its neighbor, which began in the first quarter, had “an outsized impact on YouTube ads compared to the rest of Google,” chief financial officer Ruth Porat said in an earnings call. This stems from both the suspension of the vast majority of commercial activity in the region, as well as a related reduction in spending primarily by brand advertisers in Europe, she said.

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Alphabet has suspended some activities in Russia as the Kremlin takes aim at Western companies that are limiting some broadcasters linked to local government.

Google’s search advertising, often tied more closely to specific customer purchasing decisions than broader brand awareness campaigns, was less affected by broader economic concerns. A rebound in travel as pandemic-related restrictions continued to ease helped support the company’s revenue growth, analysts said.

Google Chief Commercial Officer Philipp Schindler said “people are apparently back on the move.” Travel searches in the quarter were higher than what the company had seen in the pre-pandemic first quarter of 2019, he said.

Alphabet posted revenue of $68 billion in the first three months, meeting Wall Street expectations. Net income, weighed down by accounting factors related to certain investments, fell 8.3% to $16.4 billion, below the consensus estimate of analysts polled by FactSet.

Shares of the company closed more than 3% on Tuesday and fell further after the results.

Ms Porat said some of the issues that weighed on first-quarter results, including supercharged growth numbers a year ago and the suspension of business in Russia, would persist in the current quarter.

YouTube, the Internet’s largest video destination, has felt some of the ad market slump. It contributed $6.87 billion to first-quarter sales, below Wall Street expectations of about $600 million. Alphabet has increased its spending on YouTube to maintain its lead in video by funding an alternative to TikTok, YouTube Shorts, and adding live shopping.

The Shorts feature, chief executive Sundar Pichai said, had grown to more than 30 billion daily views, four times the previous year’s figure. The company focused on developing and deploying the feature. Earning money should come later.

Alphabet has seen revenue growth from its cloud computing business, where it is trying to catch up with Amazon.

com Inc. and Microsoft Corp.

Cloud activity remains a heavy investment area for the company and Google Cloud Services remains unprofitable.

Last month, Alphabet said it planned to spend nearly $5.4 billion to buy cybersecurity firm Mandiant. Inc.

to better automate cyber defenses by injecting specialized intelligence into one of the world’s largest platforms for cloud-based tools.

Investments in cybersecurity have become something of an arms race among cloud service providers, with a wave of ransomware and other attacks raising concerns among customers about data security. Microsoft, which also released its quarterly results on Tuesday, said revenue and profit rose as demand for its cloud services and software products continued to climb, with the pandemic further spurring remote working.

Google Cloud sales grew about 44% year-over-year to $5.8 billion, generating an operating loss of $931 million. Microsoft, in its results, said sales of Azure and its other cloud services were up 46% from the year-ago quarter. Amazon releases its quarterly results on Thursday.

Alphabet also said it would buy back up to an additional $70 billion of a portion of its stock.

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Write to Meghan Bobrowsky at [email protected]

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