Alphabet Missed Second Quarter Profits and Revenue

Google CEO Sundar Pichai speaks during the Google I/O keynote at the Shoreline Amphitheater in Mountain View, California on May 7, 2019.

Josh Edelson | AFP | Getty Images

Alphabet informed weaker-than-expected earnings and earnings for the second quarter. Shares rose more than 4% in extended trading.

Here’s how the company did it:

  • Earnings per share (EPS): $1.21 vs. $1.28 expected, according to Refinitiv.
  • Income: $69.69 billion vs. $69.9 billion expected, according to Refinitiv.
  • YouTube ad revenue: $7.34 billion compared to $7.34 billion According to StreetAccount, $7.52 billion is expected.
  • Google Cloud Income: $6.28 billion, up from $6.28 billion. According to StreetAccount, $6.41 billion is expected.
  • Traffic Acquisition Costs (TAC): $12.21 billion vs. According to StreetAccount, $12.41 billion is expected.

Revenue growth slowed to 13% this quarter from 62% a year earlier as the company benefited from reopening from the pandemic and consumer spending surged.

Currency fluctuations due to the stronger dollar reduced revenue growth by 3.7 percentage points, chief financial officer Ruth Porat said in an interview with CNBC’s Deirdre Bose. Porat said the dollar’s strength would hit the next quarter’s results even harder.

Porat also described the current outlook as “uncertainty in the global economic environment.”

Advertising revenue increased just 12% to $56.3 billion as marketers cut their spending to cope with inflationary pressures. The most notable slowdown was in the YouTube division, where sales rose 5% after jumping 84% in the same period a year ago.

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In addition to an overall reduction in ad spending, YouTube is also facing increased competition from TikTok in the short video space.

The report comes a few days after the Snap announced disastrous quarterly results and said it plans to slow down recruitment because “predictability remains incredibly difficult.” Unlike Snap, Alphabet shares rose slightly after the release of the data, as investors may have been expecting more warning signs.

According to the report, Google’s search and other revenue was $40.69 billion, up from $35.85 billion a year earlier. This growth was fueled by travel and retail inquiries, said Philip Schindler, Google’s chief business officer.

Revenue in Alphabet’s “Other Bets” segment, which includes Waymo’s self-driving car division as well as some of the company’s healthcare and venture arm units, rose $1 million year-over-year to $193 million. The company lost $1.69 billion in the quarter.

Google Cloud, whose revenue fell short of expectations, lost $858 million in the quarter. The cloud division is trying to take a share from Amazon Web services and Microsoft Azure, the two leading players in the market. Microsoft said On Tuesday, revenue from Azure and other cloud services was up 40% over the period.

Alphabet said its workforce increased 21% to 174,014 full-time employees from 144,056 a year earlier. However, the company said last month that slow hiring and investment pace through 2023, and CEO Sundar Pichai told employees in a memo: “We are not immune to economic headwinds.”

The company expects these problems to persist until the end of 2022.

“Going forward, last year’s very strong revenue performance continues to create a tough competitive edge that will weigh on annual ad revenue growth through the end of the year,” Porat said during the call.

Alphabet did not provide a revenue forecast, but analysts expect a 14% year-on-year growth to $293.9 billion, Refinitiv said. The stock has lost about a quarter of its value this year.

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