Alphabet earnings show slowing sales growth on digital-ad tumult

Google parent’s cloud investments aimed at catching Amazon and Microsoft are weighing on its bottom line.

Alphabet reported top-line growth in its cloud-computing business. Kirill Kudryavtsev/ AFP.

Google parent Alphabet has posted slower sales growth as global economic turmoil disrupted digital advertising spending.

The company’s first-quarter sales rose 23 per cent from the year-ago period, the lowest rate for the tech giant since late 2020. The company at the time saw a period of massive sales growth, as small and large businesses alike flooded into the ad market seeking to win customers who spent the early period of the pandemic sequestered in their homes. Company sales advanced 41 per cent last year.

Rising inflation, supply chain disruptions, Russia’s war on Ukraine and other factors have weighed on the economic outlook and, analysts say, companies’ appetite to spend on ads. Snap Inc. said last week that those pressures affected its financial results in the most recent quarter and could dent the ad market going forward.

Google’s search advertising — often linked more closely to specific customer purchasing decisions than to broader brand-awareness campaigns — was less affected by the wider economic concerns. A rebound in travel as pandemic restrictions continued to ease helped underpin the company’s revenue growth, analysts said.

Alphabet reported $US68bn in sales for the first three months, meeting Wall Street expectations. Net income, weighed down by accounting factors linked to some investments, dropped 8.3 per cent to $US16.4bn, below the consensus estimate of analysts surveyed by FactSet.

Shares in the company closed down about 3.6 per cent, after retreating more than 6 per cent in late trading after posting the results.

YouTube, the internet’s largest video destination, felt some of the sting of the ad market turmoil. It contributed $US6.87bn in first-quarter sales, falling short of Wall Street’s expectations by some $US600m. Alphabet has been ramping up spending for YouTube to maintain its lead in video by funding a TikTok alternative, YouTube Shorts, and adding live shopping.

Alphabet reported top-line growth in its cloud-computing business, where it is trying to catch up to Amazon.com and Microsoft Corp. The cloud business remains a heavy investment area for the company, and Google Cloud Services remains unprofitable.

Last month, Alphabet said it planned to spend nearly $US5.4bn to buy cybersecurity firm Mandiant to better automate cyber defences by injecting specialized intelligence into one of the world’s largest platforms for cloud-based tools.

Cybersecurity investments have become something of an arms race among cloud service providers, with a rash of ransomware and other attacks driving customer concerns about data security. Microsoft, which also reported quarterly earnings, said that revenue and profit rose as demand for its cloud services and software products continued to climb, with the pandemic spurring more remote work.

Sales for Google Cloud rose about 44 per cent year-over-year to $US5.8bn, generating an operating loss of $US931m. Microsoft, in its earnings, said sales for Azure and its other cloud services advanced 46 per cent from the year-ago quarter. Amazon reports quarterly results Thursday.

Alphabet also said it would repurchase up to an additional $US70bn of some of its stock.

The Wall Street Journal