Online ad companies have warned of slowing ad demand amid high inflation and recession fears, and despite its size, Google has been no exception.
Sales from Google’s core advertising business reached $56 billion in the three months ended June 30, the company said Tuesday. This represents an 11.6% year-over-year increase, but it is a significant slowdown in the growth rate compared to the same quarter last year, in which it recorded a nearly 69% increase in ad revenue as it benefited from a pandemic boom in online advertising. .
Google also narrowly missed Wall Street analysts’ expectations for sales and earnings in the quarter. The company reported revenue of $69.7 billion in the quarter, a 13% increase from the year-ago quarter, compared to the $69.9 billion forecast by analysts. Net income for the quarter fell more than 13% year-on-year to $16 billion, missing Wall Street estimates of $17.3 billion.
Still, investors didn’t appear to be phased by the results, perhaps in part thanks to (TWTR)%20says%20%27uncertainty,twitter%2Dearnings%2Dmusk” target=”_blank”>similar slowdowns in ad sales growth reported by Twitter (TWTR) and Snap (SNAP) last week. Shares of Google (GOOGL) parent company Alphabet rose more than 2.5% in after-hours trading on Tuesday after the report.
Microsoft (MSFT) also announced on Tuesday that it posted revenue of $100 million in the quarter due to a reduction in ad spend.
In a call with Wall Street analysts on Tuesday, Alphabet’s chief financial officer, Ruth Porat, pointed to “retreats in spending by some advertisers”, including due to economic uncertainty and “commitment levels weaker” with its products compared to the pandemic.
Advertising on the Google Search Network is often considered to be better insulated from economic issues than other online ad formats. Nevertheless, the difficult macroeconomic environment could continue to weigh on Google’s business in the coming quarters. Google said earlier this month that it plans to slow its pace of hiring and rethink its investments for the rest of this year amid a slowing market and economic uncertainty.
“We are focused on hiring engineers, technicians and other critical roles … and working to increase productivity,” Alphabet CEO Sundar Pichai said on Tuesday’s call.
“It’s a privilege to build technologies that are useful in good times and in uncertain times,” added Pichai.
A bright spot in Google’s revenue was an almost 36% increase in year-over-year revenue from its cloud computing segment.
“While ad spend will rise and fall with economic cycles, the overall shift to cloud computing as the backbone of all digital business – advertising, marketing and sales – is long-term,” said Tom Johnson, director digital world of the multimedia agency Mindshare Worldwide. , said in a note to investors following Google’s earnings report.