Photo Credit: Photo Mix from Pixabay

Big tech is struggling to maintain the optimism in the market as is evident in the recent quarterly results. Alphabet, Google’s (Nasdaq: GOOG) parent, recently reported its third-quarter results that failed to impress the market and sent the stock tumbling.

Alphabet’s Financials

Alphabet’s first-quarter net revenues grew 6% to $69.09 billion, falling short of the market’s forecast of $70.58 billion. A year ago, Google had reported a revenue growth of 41%. Q1 net profit fell 27% to $13.9 billion. The earnings fell short of analysts’ estimates of $16.9 billion. Adjusted EPS of $1.06 fell short of the Street’s estimated $1.25.

By segment, revenues from Google Services that includes Search, advertising, Android, Chrome, hardware, Google Maps, Google Play, and YouTube grew from $59.9 billion a year ago to $61.4 billion. YouTube ad revenue fell 2% to $7.07 billion, falling significantly short of the Street’s estimate of $7.4 billion. Overall advertising revenue of $54.48 billion grew from previous year’s $53.13 billion. Net of acquisition costs, advertising revenues grew 4% to $39.5 billion, compared with the market’s forecast of $41 billion. Google Cloud revenues grew from $5 billion to $6.9 billion, and revenues from other bets grew to $209 million.

Alphabet attributed the weak performance to less ad spending for insurance, loans, mortgages and crypto, as well as fewer gaming ads.

Google did not provide an outlook for the current quarter.

Alphabet’s Focus Areas

To combat weak market conditions, Alphabet has announced the need for driving efficiency across the organization through a project known as Simplicity Sprint. The project will include cost-cutting measures across the company as it braces itself for a potential recession, continued price inflation, rising interest rates, and tempered ad spending.

Last month, CEO Sundar Pichai announced his intention to make the company 20% more efficient by calling for product cuts through detailed reviews of all of its projects. As part of the initiative, Google has already canceled the release of the next generation of the Pixel laptop, has shut down funding for its in-house incubator and has shut down operations for its digital gaming service Stadia.

Google has not yet announced job cuts but has slowed hiring since August and revamped the employee evaluation process to ensure that its employees are more mission-focused. It did not provide absolute numbers but mentioned that the Q4 headcount additions will be significantly lower than those in Q3. As it plans for the turbulent future, Google will continue to make trade-offs where needed to ensure that it controls the growth in operating expenses.

Despite the cost and economic pressures, Google continued to invest and release additional features that drive growth across its offerings. Within Search, it is increasingly leveraging the use of AI to deliver a more natural and intuitive search experience. It will allow users to see things that may be helpful even before they finish typing the search query. Google is also making visual search more natural. Google Lens is already being used to answer more than 8 billion questions every month. Google is accelerating its visual search capabilities by adding translation capabilities that blend translated text seamlessly into the background of images.

YouTube had a dismal performance in the quarter, but it continues to add capabilities to help it compete with TikTok. Google is improving the monetization of Shorts and will soon be introducing revenue sharing on Shorts. This update will make YouTube the only platform where creators can monetize their content across short, long, and live formats at scale.

Finally, Google Cloud continued to add capabilities that are helping its customers solve business challenges, improve productivity, reduce costs, and unlock growth engines. Google announced more than 100 new products recently and new and growing partnerships with companies like Toyota, Prudential plc, Coinbase, and AppLovin. As offices globally migrate to hybrid working conditions, Google Workspace is becoming a powerful enterprise offering. Google Workspace is now being used by more than 8 million businesses and organizations worldwide. The earlier acquisition of Mandiant is helping Google ensure a more secure workspace for its customers.

Google’s stock is trading at $96.58 with a market capitalization of $1.25 trillion. It had climbed to a 52-week high of $152.10 in November last year. The stock had fallen to a 52-week low of $91.90 earlier this month.

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