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Digital Ad Slowdown Hits Google’s Bottom Line

A 23 per cent rise in first quarter sales might seem cause for celebration, but for Google parent Alphabet, it represents a huge slowdown in sales growth, as the global financial crunch hits digital advertising spend.

This 23 per cent jump in first quarter sales marks the lowest year-on-year growth rate for Alphabet since late 2020. First quarter of 2021 saw sales jump 34 per cent from the previous year.

Alphabet’s postings were, across the board, well under Wall Street estimates.

Earnings per share were US$24.62, as opposed to the expected US$25.91.

Overall revenue for the March quarter was US$68.01 billion (A$95.3 billion), well under the expected $68.11 billion.

YouTube was the biggest disappointment, falling well short of the expected US$7.51 billion in advertising revenue to bring in ‘just’ US$6.87 billion. Apple’s third-party ad targeting crackdown has removed some of its revenue gained in previous years through iPhone users.

The company reported US$54.66 billion in total advertising revenue for the quarter, up from $44.68 billion the year prior, but not the level of growth the tech giant would have liked. The main driver of this, Google’s search advertising business, gained 24 per cent to hit US$39.6 billion.

The one bright spot seems to be Google Cloud, which surpassed expectations to increased 44 per cent, and bring in US$5.82 billion, as opposed to the US$5.76 billion expected by Wall Street.

This division continues to bleed money, however, reporting an operating loss of US$931 million, compared to US$974 million the year prior.

Chief Executive Officer Sundar Pichai points out “strong growth in Search and Cloud, in particular, which are both helping people and businesses as the digital transformation continues.”

Chief Financial Officer Ruth Porat said suspension of its commercial activities in Russia and the “broader unrest as a result of the invasion of Ukraine” impacted revenue.

“Beyond that, there was a bit of a pullback on ad spend in Europe,” she told Bloomberg TV. “There’s a lot of uncertainty in the macro environment.”

The company also announced a US$70 billion share buyback program.

The poor results have seen those shares slide by 5 per cent to US$2,373, the lowest they have hit since last May.

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