Alphabet stock plummets as company falls short on Google ad revenue expectations

The stock of Google’s parent company, Alphabet (GOOG, GOOGL), took a hit following the release of its fourth-quarter earnings, which failed to meet analysts’ projections for ad revenue, a key aspect of the company’s business. This led to a more than 5% decline in the stock during early trading on Wednesday, contributing to a broader decrease in the tech-heavy Nasdaq (^IXIC).
Revenue, excluding traffic acquisition costs, for the third quarter was $72 billion as opposed to the anticipated nearly $71 billion. This marked an increase from the $63.12 billion generated in the same period the previous year. However, investors primarily focused on the advertising shortfall.
The company did report ongoing growth in its cloud business, which has garnered investor attention due to its relevance in AI development. Google Cloud revenue exceeded expectations, reaching $9 billion, a 26% surge from a year earlier. Alphabet has been striving to capture additional market share in the cloud computing sector, where it currently ranks third behind rivals Amazon (AMZN) and Microsoft (MSFT).
Here are some of Alphabet’s key metrics compared to Wall Street expectations for the company’s fiscal fourth quarter, according to Bloomberg data:
– Revenue, excluding traffic acquisition costs: $72.32 billion vs. $70.97 billion expected ($63.12 billion in Q4 2022)
– Adjusted earnings per share: $1.64 vs. $1.59 expected ($1.05 in Q4 2022)
– Cloud revenue: $9.19 billion vs. $8.95 billion expected ($7.32 billion in Q4 2022)
– Ad revenue: $65.5 billion vs. $65.8 billion expected ($59.04 billion in Q4 2022)
During a call with analysts, both CEO Sundar Pichai and CFO Ruth Porat emphasized the significance of streamlining the business to achieve cost savings and efficiency.
Pichai mentioned, “Across different teams we have wound down some non-priority projects which will help us invest and operate well in our growth areas.”
Porat highlighted the company’s focus on eliminating organizational layers to enhance efficiency, resulting in a reduced pace of hiring. However, she affirmed that the company will continue to invest in top talent.
The earnings report came shortly after Google laid off hundreds of employees across various divisions as part of efforts to reduce expenses and concentrate on growth areas, including AI. Similar to its counterparts in corporate America, Google has turned to layoffs to enhance efficiency following significant expansions during the COVID era.
Google’s executives also addressed concerns about the potential disruption of the company’s search products by the advancement of AI, particularly with generative AI chatbots changing the way people interact with the web.
Pichai stated that AI tools broaden Google’s offerings, providing users with a wide range of information sources online. Google has been viewed as trailing behind Microsoft in leveraging the consumer AI chatbot trend, with Microsoft’s investment in OpenAI, the entity behind the popular chatbot ChatGPT.
Google has undertaken multiple initiatives to enhance its search tools with AI (Bard and Search Generative Experience) and introduce new, advanced large language models, such as Gemini.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban. Click here for the latest stock market news and in-depth analysis, including events that move stocks. Read the latest financial and business news from Yahoo Finance.

Author: OpenAI