Alphabet’s quarterly revenue growth fell to its slowest pace in two years, but the internet advertising giant said its search and cloud businesses had fared well despite rising macroeconomic headwinds .
Google parent on Tuesday reported a 13% rise in revenue in the June quarter to $69.7 billion, missing estimates of $70.8 billion and marking the fourth straight quarterly decline compared to a year earlier.
Operating margins also fell to 28%, down 3 percentage points from a year ago. Net income fell to $16 billion from $18.5 billion a year ago, missing Wall Street’s forecast of $17.4 billion. Earnings per share came in at $1.21, versus analysts’ estimates of $1.27.
But Alphabet CFO Ruth Porat called the company’s second-quarter performance “solid,” noting that constant-currency revenue rose 16 percent.
He said on a call with analysts that any apparent weakness could be explained by reference to a surge in demand last year, when Google benefited from the coronavirus-induced work-from-home trend after the initial shock of the virus outbreak Twelve months ago, revenue was up 62 percent year-on-year.
“Last year’s very strong revenue performance continues to create tough complications that will weigh on year-over-year ad revenue growth rates for the rest of the year,” Porat said.
Alphabet executives frequently cited “uncertainty” in their prepared remarks, saying a tough macro environment was causing widespread supply chain problems and inventory problems that were causing companies to spend less on ads.
One disappointment was YouTube, where the $7.3 billion in revenue was not calculated at $7.5 billion. “On YouTube and [Google] Network, some advertiser spending pullbacks in the second quarter reflect uncertainty about a number of factors that are difficult to disaggregate,” Porat said.
He said the results showed “strength in research and momentum in the cloud.” Revenue at Google’s Cloud division grew 36 percent to $6.3 billion, but posted a loss of $858 million in the quarter, up from a loss of $591 million a year ago. Google Search revenue grew 13% to $40.7 billion, slightly ahead of estimates.
Other Bets, the division that houses Google’s self-driving unit Waymo, posted a loss of $1.7 billion, compared with a loss of $1.4 billion a year ago.
Currency movements were a 3.7% drag last quarter, and Porat warned investors to expect “an even bigger headwind” this quarter as the US dollar trades at a 20-year high.
Shares rose more than 5 percent in after-hours trading as investors “heaved a sigh of relief” that the results weren’t worse, said Jesse Cohen, senior analyst at Investing .com, which described the quarter as “disappointing.” . . to almost all business units”.
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Analysts had expected a weak quarter, and projections had been tempered further in recent weeks as fears of a U.S. recession grew and smaller rivals such as Snap posted disappointing earnings.
Revenue growth of 13 percent put Alphabet on a clear downward trajectory. Growth was 23% in the March quarter, 32% in the December quarter and 41% in the September quarter.
Chief Executive Sundar Pichai told analysts it was a good time for Alphabet to “sharpen our focus” but assured investors the group would continue to make big investments over the long term.
“Personally, I find moments like these clarifying,” Pichai said. “It is an opportunity to digest and . . . Make sure we are working on the right things. . . taking a long-term view, making sure we continue to invest in technology and deep computing. . . and reallocate resources to our most critical priorities.”
Alphabet, which this month said it would delay hiring through the rest of 2022, added 10,108 people in the quarter, with most hires in technical roles.