Alphabet Inc.’s Q4 Earnings & Google Ads Fall Short

Google’s parent company, Alphabet Inc., recently disclosed its fourth-quarter results, drawing particular attention to the unmet ad revenue target, the mainstay of the business. This disappointing news pushed the stock down by over 5% in early trading on Wednesday.

Alphabet reported total revenue of $72 billion, excluding traffic acquisition costs for the third quarter, compared to an anticipated $71 billion. This figure surpassed last year’s results of $63.12 billion for the same period, but the shortfall in ad earnings seemed to overshadow this gain.

Despite the drawback in ad revenue, Alphabet demonstrated robust growth in other areas, namely its cloud business. The Google Cloud division exceeded predictions by posting revenue figures of over $9 billion, marking a significant 26% surge compared to last year. This growth is critical, considering the emerging importance of cloud services in artificial intelligence (AI) development.

Currently, Google is ranked third, behind Amazon and Microsoft, in the global market for cloud computing. Nonetheless, it has been aggressively implementing strategies to boost its market share.

A comparative breakdown of Alphabet’s key metrics versus Wall Street expectations for the fourth quarter reveals:

• Revenue, excluding traffic acquisition costs, was $72.32 billion, against an expected $70.97 billion.
• Adjusted earnings per share stood at $1.64, exceeding the forecasted amount of $1.59.
• Cloud revenue hit $9.19 billion, surpassing the $8.95 billion expectation.
• Ad revenue ended up at $65.5 billion, falling short of the projected $65.8 billion.

Alphabet’s CEO Sundar Pichai and CFO Ruth Porat emphasized the necessity of refining business operations to enhance cost-effectiveness and efficiency. They’ve discontinued non-priority projects and removed some organizational layers, which unfortunately led to a slower hiring rate. However, the duo maintained that Alphabet would continue hiring high-caliber talent.

This earnings disclosure follows shortly after Google announced layoffs across multiple divisions as part of its cost-cutting measures. This strategy, aimed at focusing more on growth areas like AI, mimics several other corporations’ responses to the expansive growth experienced in the COVID-19 era.

In addressing concerns that AI advancements might disrupt Google’s search products since AI chatbots alter web interactions, Pichai stressed AI’s role in broadening Google’s services. The tech giant is also vigorously working to integrate AI into its search tools and develop advanced large language models like Gemini in a bid to rival Microsoft’s early inroads in consumer AI chatbots.