Google parent Alphabet reports fourth consecutive drop in quarterly profit

Google parent Alphabet reported a fourth consecutive drop in quarterly profit amid a slowdown in the advertising business as it announced its financial results for the quarter that ended December 31, 2022, missing both earnings and revenue expectations.

The company’s Q4 net income dropped 34% to $13.6 billion (or $1.05 per share) from $20.6 billion ($1.53 per share) in the year-ago period, missing analysts’ expectations of $1.18 per share, according to Refinitiv estimates.

Alphabet posted fourth-quarter revenue of $76 billion, slightly below analysts’ estimates of $76.5 billion, according to Refinitiv data. The revenue growth slowed to 1% from 32% in the corresponding period of the last fiscal year.

“We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” Sundar Pichai, Chief Executive Officer of Alphabet and Google, said in a statement.

During the fourth-quarter earnings call, Pichai spoke about the opportunities artificial intelligence (AI) enables for consumers, its partners, and its business.

“Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflexion point, and I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond,” he stated.

Language Model for Dialogue Applications (LaMDA), a family of conversational neural language models developed by Google, will be available in the coming weeks and months, according to Pichai.

Alphabet's chief also noted that the firm is committed to “investing responsibly with great discipline” and defining areas where it can operate more cost-effectively.

“We did a rigorous review across product areas and functions to ensure that our people and roles are aligned with our highest priorities as a company,” Pichai said.

Alphabet now has 190,234 employees, up from 156,500 in 2021. In January 2023, the tech firm announced a reduction of its workforce of approximately 12,000 roles. It expects to incur employee severance and related charges of $1.9 billion to $2.3 billion, the majority of which will be recognised in the first quarter of 2023, the company said.

Most of Alphabet’s revenue comes from Google ads. Google’s advertising revenue, including Google Search, YouTube ads, and Google Network, was $59 billion in the fourth quarter, compared with $61.2 billion in the year-ago period. Revenue from Google’s Search, its largest business, dipped over 1% to $42.6 billion in Q4. 

“Our revenue this quarter were impacted by pullbacks in advertiser spend and the impact of foreign exchange,” Pichai said, adding that beyond its advertising business, it has strong momentum in Cloud, YouTube subscriptions, and hardware.

Revenue from Google Cloud, the unit that offers infrastructure and platform services, collaboration tools, and other services for enterprise customers, rose 32% to $7.3 billion from $5.5 billion the year prior. On the other hand, YouTube’s ad sales decreased by 8% to $7.9 billion.

“Despite ongoing revenue headwinds in Q4, we’re confident in YouTube’s long-term trajectory,” Philipp Schindler, Senior Vice President and Chief Business Officer of Alphabet and Google, said.

The company’s subscription business continues to grow, with YouTube Music and Premium surpassing 80 million subscribers, including trials, according to Pichai.

For the full year 2022, Alphabet posted revenue of $282.8 billion, up 10% from $257.6 billion in 2021. Its net income for 2022 was $60 billion compared to $76 billion in 2021.

“We have significant work underway to improve all aspects of our cost structure, in support of our investments in our highest growth priorities to deliver long-term, profitable growth,” Ruth Porat, Chief Financial Officer of Alphabet and Google, said in a statement.