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: Google ad sales take a hit and widely miss estimates, Alphabet stock drops 6%

Alphabet Inc. is feeling the sting of a downturn in digital-ad spending. Google’s parent company reported just 6% sales growth year-over-year Tuesday and missed widely on its advertising revenue, pushing shares down in extended trading.

Alphabet 
GOOGL,
+1.91%

 
GOOG,
+1.90%

 reported net income of $13.9 billion, or $1.06 a share, in its fiscal third quarter, compared with net income of $1.40 a share in the same quarter a year ago. Total revenue improved a middling 6% to $69.1 billion from $61.88 billion a year ago, the slowest year-over-year growth since sales declined in June 2020, while revenue after removing traffic-acquisition costs was $57.3 billion, compared with $53.6 billion in the year-ago period.

Analysts surveyed by FactSet had estimated net income of $1.26 a share on ex-TAC revenue of $58.2 billion and overall revenue of $71 billion. Alphabet shares slipped 6% in after-hours trading immediately following the release of the results, after closing with a 2% increase at $104.48.

The results, which missed in several key product categories, further rattled investors, already spooked by poor quarterly results last week from Snap Inc. 
SNAP,
+15.52%
.
Facebook parent company Meta Platforms Inc. 
META,
+6.01%

is scheduled to report its third-quarter results Wednesday.

Alphabet Chief Executive Sundar Pichai acknowledged the shortfall in ad revenue during a conference call with analysts. He vowed to take several measures, including a sharpened focus on products that improve search through artificial intelligence and to scale back hiring and other operating expenses.

“There is no question we are operating in an uncertain environment,” Alphabet Chief Business Officer Philipp Schindler said on the call, noting pullbacks in ad spending by financial services deepened during the third quarter.

Google’s total advertising sales improved to $54.5 billion from $53.13 billion a year ago, but badly missed analysts’ average expectations for $56.58 billion. Search was $39.5 billion, compared with $37.93 billion last year. YouTube ad sales slipped to $7.07 billion from $7.21 billion a year ago.

“When Google stumbles, it’s a bad omen for digital advertising at large,” Insider Intelligence analyst Evelyn Mitchell said. “Not only did Google miss analyst expectations for topline revenue, YouTube ad revenues shrank for the first time since Google started reporting YouTube earnings separately in Q4 2019, due in large part to persistent competition in streaming and short video.”

Google’s Cloud revenue did climb to $6.9 billion from $4.99 billion; Google Cloud is believed to be third in cloud sales behind rivals Amazon.com Inc. 
AMZN,
+0.65%

and Microsoft Corp. 
MSFT,
+1.38%
.

As is its customary practice, Alphabet did not disclose fourth-quarter guidance. But Alphabet Chief Financial Officer Ruth Porat cautioned during the analyst call that the company faces “tough comps” in the current fourth quarter. Last year, Alphabet raked in $75.3 billion in Q4 revenue.

Google’s stock has skidded 28% so far this year. The broader S&P 500 index 
SPX,
+1.63%

is down 19% in 2022.

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