After the turmoil in Ukraine impacted YouTube ad sales, Google parent Alphabet Inc (GOOGL.O) disclosed its first quarterly revenue miss of the epidemic on Tuesday, investors were worried as the global economy sputtered.
As the pandemic brought more shops and people online, the world’s leading provider of search and video made a fortune during the last two years. But, according to analysts, outdoing those sales has proven difficult so far this year, as the conflict, rising inflation, and supply shortages have caused advertisers to abandon marketing initiatives.
Ruth Porat, Alphabet’s Chief Financial Officer, said it’s too early to say when sales hampered by the war will pick up, and she cautioned that the strengthening currency would impact sales even more in the current quarter.
Alphabet’s stock, which had risen about 90% in the previous two years, dipped by 2.5 percent when the data were released late Tuesday. During the normal session, they had plummeted 3.6 percent.
Aptus Capital Advisors portfolio manager David Wagner expressed rising concerns about the macro situation. “Alphabet has been viewed as one of the most insulated corporations in the advertising industry in comparison to peers,” he continued, “but sometimes you can own the greatest house in the worst neighborhood.”
Alphabet reported first-quarter sales increased by 23% year over year to $68.01 billion, but fell short of the average forecast of $68.1 billion among financial experts polled by Refinitiv, the company’s first shortfall since the fourth quarter of 2019.
The conflict in Ukraine, which began during the quarter, had a “outsized impact” on YouTube revenue, according to Porat, because the business halted ad sales in Russia and brand advertisers, particularly in Europe, cut back on spending once the fighting erupted.
According to Porat, Russia accounted for 1% of Google’s worldwide sales in 2021.
She also said that sales to direct-response marketers on YouTube were slowing, and that antitrust-related cuts to app store fees had cancelled out gains in subscription revenue.
Google’s “other” income, which includes app, hardware, and subscription purchases, came in at $6.8 billion, falling short of analysts’ expectations of $7.3 billion.
Quarterly profit was $16.44 billion, or $24.62 per share, falling short of analyst forecasts of $25.76.
Alphabet also announced that its board of directors has approved an extra $70 billion in stock buybacks. Nearly the last two years, it has repurchased over $81 billion in stock.
According to Insider Intelligence, Google is anticipated to capture 29 percent of the $602 billion worldwide internet ad market in 2022, making it the company’s 12th consecutive year on top.
The macro environment, according to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, could bring some ups and downs for Alphabet, but the business remained important to consumers and marketers.
Snap Inc (SNAP.N) cautioned last week that ad income could be impacted by inflation, labor shortages, and other economic issues.
On Wednesday, Facebook parent Meta Platforms Inc (FB.O), the world’s second-largest online advertising platform with a projected 21.4 percent market share in 2022, releases earnings. Following Alphabet’s findings, its stock dropped 2.5 percent on Tuesday.
Google ad sales are also being eroded by increasing competition from companies like Amazon.com Inc (AMZN.O) and ByteDance’s TikTok. Advertisers in travel and entertainment are gearing up again, as retailers continue to pour money into marketing. Furthermore, Google is better positioned to weather economic shocks than competitors because its advertising tools are among the last to be abandoned by marketers because they are well-known, simple to use, and reach a larger number of users than alternatives.
Numerous lawsuits and investigations examining whether Google has engaged in anticompetitive behaviour through its advertising and other companies are high on the company’s risk list.
The most recent focus has been on its proposed $5.4 billion acquisition of cybersecurity services business Mandiant, which is being extensively scrutinized by the US Department of Justice. Google has stated that it hopes to complete the transaction this year.
Google Cloud, which would include Mandiant, saw a 44 percent gain in sales in the first quarter compared to the same period last year, to $5.82 billion.