Google may be a giant in the world of digital advertising, but it’s not immune to the impact of the economic downturn and fears of a recession on the online ad market.
Google’s parent company Alphabet ( GOOGL ) reported third-quarter earnings results on Tuesday that beat Wall Street analysts’ estimates for both sales and profit, largely due to a sharp slowdown in growth in its advertising business.
It reported revenue of nearly $69.1 billion, down just 6% from the same period last year. Google’s advertising revenue grew just 2.5% year over year, compared to 43% growth a year ago. YouTube’s ad business, which competes with TikTok, was particularly hard hit, with revenue down nearly 2% from the year-ago quarter.
Google’s net income, on the other hand, was $13.9 billion, down more than 26% from the previous year and well below the $16.6 billion analysts were expecting.
The company’s shares fell 6% in after-hours trading on Tuesday following the report.
Alphabet and Google CEO Sundar Pichai alluded to the tougher economic climate in a statement accompanying the results.
“We are sharpening our focus on a clear set of product and business priorities,” Pichai said. “We are able to invest responsibly for the long term and respond to the economic environment.”
Tech companies, including Google, reported that they were starting to feel the impact of the decline in online ad spending last quarter. High inflation, fears of recession and the ongoing war in Ukraine have continued to weigh on the industry.
Growth in other areas of Google’s business is also slowing. Google Cloud revenue grew 37% year-over-year, compared with growth of nearly 45% a year ago, and the segment’s net loss widened to $699 million from $644 million in the same quarter last year.
Net losses for Google’s “Other Bets” segment, which includes business efforts such as its self-driving unit Waymo, accelerated year-over-year during the quarter to $1.6 billion.
“Google delivered a disappointing quarter as the search giant underperformed our expectations in nearly every business unit, especially the core ad search segment,” said Jesse Cohen, senior analyst at Investing.com.
In a call with analysts on Tuesday, Pichai said the company has begun to “reallocate resources to invest in our biggest growth opportunities.”
“In the last quarter, we’ve made a number of changes from lower-priority efforts to fuel the highest growth priorities,” Pichai said, adding that the company plans to cut headcount in the final three months of the year.
Google CEO Ruth Porat said on the call that strong growth in the fourth quarter of 2021 will make it difficult to compare year-over-year ad revenue growth to the current quarter, and that the strength of the US dollar will continue to weigh on the company. the results The company did not provide a detailed financial forecast for the current quarter.