Alphabet’s quarterly revenue growth fell to its slowest pace in two years, but the internet advertising giant said its search and cloud businesses had fared well despite increasing macroeconomic headwinds.
The Google parent on Tuesday reported a 13 per cent rise in revenues during the June quarter to $69.7bn, missing estimates for $70.8bn and marking the fourth consecutive quarterly slowdown compared with the previous year.
Operating margins also slipped to 28 per cent, down 3 percentage points from a year ago. Net income shrank to $16bn from $18.5bn a year ago, missing Wall Street’s prediction of $17.4bn. Earnings per share came in at $1.21, versus analysts’ estimates for $1.27.
But Alphabet finance chief Ruth Porat called the company’s second-quarter performance “solid”, noting that on a constant currency basis revenues were up 16 per cent.
She said on a call with analysts that any apparent weakness could be explained with reference to the prior year’s surge in demand, when Google benefited from the coronavirus-induced work-from-home trend following the initial shock of the virus outbreak. Twelve months ago, revenues had jumped 62 per cent year on year.
“The very strong revenue performance last year continues to create tough comps that will weigh on year-on-year growth rates of advertising revenues for the remainder of the year,” Porat said.
Alphabet executives frequently cited “uncertainty” in their prepared remarks, saying that a tough macro environment was causing widespread supply chain issues and inventory problems that resulted in companies spending less on ads.
One disappointment was YouTube, where $7.3bn of revenue missed forecasts at $7.5bn. “In YouTube and [Google] Network, the pullbacks in spend by some advertisers in the second quarter reflects uncertainty about a number of factors that are challenging to disaggregate,” Porat said.
She said the results showed “strength in search and momentum in cloud”. Google’s Cloud division revenues grew 36 per cent to $6.3bn, but produced a loss of $858mn in the quarter, wider than the $591mn loss recorded a year ago. Revenues at Google Search grew 13 per cent to $40.7bn, slightly ahead of estimates.
Other Bets, the division that houses Google’s self-driving unit, Waymo, produced a loss of $1.7bn, versus a loss of $1.4bn a year ago.
Foreign exchange movements amounted to a 3.7 per cent drag last quarter, and Porat warned investors to expect “an even larger headwind” this quarter as the US dollar trades at a 20-year high.
The stock jumped more than 5 per cent in after-hours trading as investors “blew a sigh of relief” that the results were not worse, said Jesse Cohen, senior analyst at Investing.com, who described the quarter as “disappointing . . . across almost all business units”.
Analysts had been expecting a weak quarter, and in recent weeks projections had dimmed further as fears of a US recession heightened and smaller rivals such as Snap released underwhelming earnings.
The 13 per cent revenue growth put Alphabet on a clear downward trajectory. Growth was 23 per cent in the March quarter, 32 per cent in the December quarter, and 41 per cent in the September quarter.
Chief executive Sundar Pichai told analysts it was a good time for Alphabet to “sharpen our focus”, but he assured investors the group would continue to make big, long-term investments.
“Personally, I find moments like these clarifying,” Pichai said. “It’s a chance to digest and . . . make sure we are working on the right things . . . taking a long-term view, making sure we’re continuing to invest in deep technology and computer . . . and reallocate resources to our most critical priorities.”
Alphabet, which this month said it would slow hiring for the rest of 2022, added 10,108 people in the quarter, with most hires in technical roles.
