admin
Last updated on March 23rd, 2024 at 10:58 am
The tech giant exceeded revenue forecasts for the last quarter of 2023 but fell short on projected advertising revenue
Alphabet’s stock dropped over 5% in after-hours trading on Tuesday, despite narrowly surpassing overall revenue forecasts for the fourth quarter of 2023. The tech giant fell short in its crucial advertising sector.
The parent company of Google reported missing predicted advertising revenue, coming in at $65.52 billion compared to the expected $65.8 billion. However, it exceeded predictions for overall revenue, reaching $86.31 billion compared to the expected $85.36 billion, marking a 13% year-over-year increase.
Despite the advertising revenue miss, Alphabet’s chief financial officer described the results as “very strong” and reiterated their commitment to re-engineering their cost base while investing to support growth opportunities.
The tepid reaction to the report follows the January layoff of 1,000 employees by Alphabet, as reported by the Alphabet Workers Union. Sundar Pichai, the chief executive, indicated later in the month that further layoffs could be anticipated in 2024 as the company shifts its focus to “investing in our key priorities,” particularly the artificial intelligence components enhancing Google’s main products.
Investors have found encouragement in the recent layoffs, according to analysts, possibly viewing the downsizing as a smart cost-saving measure in response to increasing interest rates. However, the layoffs have not been without consequences. Porat mentioned during an earnings call on Tuesday that severance expenses are expected to reach $700 million in the first quarter of 2024. In 2023, Alphabet recorded severance-related charges of $2.1 billion and $1.8 billion in charges related to vacating office locations.
Despite the overall advertising slump, Alphabet reported that YouTube advertising revenue reached $9.2 billion, up from approximately $8 billion during the same period in 2022, surpassing analyst predictions of $9.16 billion.
In a statement accompanying the earnings report, Pichai expressed Alphabet’s satisfaction with the “growing contribution from YouTube.” He also noted that the company’s digital subscription services, including YouTube and the cloud storage service Google One, generated $15 billion in revenue for the year.
“The substantial increase in our subscription revenues over the past few years demonstrates the ability of our teams to deliver high-value offerings and provides a strong foundation for future growth,” he said.
Similar to numerous tech companies, Alphabet has rushed to leverage the AI boom, fueled by the success of ChatGPT, a tool developed by the Microsoft-backed OpenAI. During Tuesday’s earnings call, the term “AI” was mentioned over 70 times. Pichai emphasized the company’s intention to incorporate its latest AI model, Gemini, into various products such as search, advertising, and cloud services.
Alphabet’s shift towards AI reflects its strategy to broaden revenue sources, especially with its core search advertising business showing signs of stagnation. The company is also contending with mounting antitrust challenges. The US Department of Justice has accused Google of monopolizing digital advertising technologies. Additionally, a judge’s ruling in January means Google will face trial over allegations from several states regarding its dominance in the advertising market. Last year, the company underwent another antitrust trial focusing on its agreements with other tech firms, including the substantial yearly payment to Apple to maintain its position as Safari’s default search engine.
The specter of antitrust regulation looms large, and with the impending demise of third-party cookies, Google is poised to face what might be its most difficult year yet,” noted Evelyn Mitchell-Wolf, a senior analyst at Insider Intelligence.
