Investors punish Google owner Alphabet for advertising shortfall

Alphabet disappointed investors as holiday season advertising sales came in below expectations, overshadowing the company’s efforts in ­developing artificial intelligence and the cloud.

The owner of Google and YouTube fell short of estimates for advertising revenue at $65.5 billion in the fourth quarter against average forecasts of $66.1 billion, and $59 billion in the same three months a year ago. Profits jumped 52 per cent to $20.7 billion.

In late trading on Wall Street after the results were released shares in ­Alphabet fell by $.848, or 5.5 per cent, to $144.57, valuing the company at $1.91 trillion.

Alphabet has faced tough competition for advertising budgets from other online platforms such as Facebook, ­Instagram, TikTok and Amazon, alongside mixed economic signals in the United States. Google, the inventor of foundational technology for today’s artificial intelligence boom, is also competing against the two players that have captured the business world’s attention — ChatGPT’s creator OpenAI and Microsoft, its financial backer.

Google is bringing a range of models called Gemini to Bard, its ChatGPT ­rival. It struck a deal to invest up to $2 billion in the AI startup Anthropic as it attempts to attract customers from larger cloud rivals Microsoft and Amazon, and is putting Gemini into advertisers’ hands so that their money keeps flowing to Google’s search business.

Overall revenue for the quarter to the end of December was $86.3 billion, compared with estimates of $85.3 billion. Alphabet said that Google Cloud ­revenue in the latest quarter was $9.2 billion, while analysts were ­expecting $8.9 billion. That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7 per cent but was slower than 32 per cent growth in the same quarter a year ago quarter.

“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks,” Thomas Monteiro, senior analyst at Investing.com, said.

The earnings report comes just weeks after Google laid off hundreds of workers across a number of divisions as the company aims to cut expenses and focus on growth areas, including AI. The tech giant joins several of its peers and others across corporate America that have relied on layoffs to boost ­efficiency in the wake of significant expansions in the Covid pandemic.

In tonight’s results, the company said that for redundancies last year there were severance and related charges of $2.1 billion. Ruth Porat, chief ­financial officer, said on the earnings call that severance-related expenses in the first quarter of this year will be about $700 million.

Sundai Pichai, chief executive, said: “We are pleased with the ongoing strength in search and the growing ­contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation.”