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Google Sends Reassuring Signals to Wall Street

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Google Sends Reassuring Signals to Wall Street



letter (GOOGL) – Get the Alphabet Inc. report Investors wanting to keep their finger on the true pulse of the economy are eagerly awaiting the financial results.

Are we already in recession? If yes, what is the level of damage to the business? These are the questions investors want Google’s parent company to answer.

The Mountain View, Calif.-based company’s response isn’t entirely clear, but there are some reassuring factors, or at least ones that won’t send investors into a full-blown deep recession.

“Economic Outlook [is] Not sure,” CEO Sundar Pichai told analysts on an earnings call after the results.

Net income fell 13.6% to $16 billion in the second quarter ended June 30, compared with the second quarter of 2021, the company announced in a July 26 press release.

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Earnings miss expectations…but Youtube has new opportunities to slow hiring but invest in cloud

Earnings were lower than expected…but

Quarterly revenue rose 12.6% year over year to $69.7 billion. That was below the $69.9 billion expected by analysts at Refinitiv. Alphabet said unfavorable currency effects, especially the U.S. dollar, reduced its revenue by 3.7%

Earnings per share (EPS) came in at $1.21, missing analysts’ expectations of $1.28.

In detail, Alphabet missed expectations on almost all counts: YouTube’s ad revenue rose just 4.8% in a year to $7.34 billion. Analysts expected $7.52 billion. In addition to a possible drop in online advertising budgets, YouTube is also competing with TikTok and Instagram for marketing dollars.

“The quarter-over-quarter deceleration in YouTube and online advertising revenue primarily reflects a pullback in some advertiser spending,” CFO Ruth Prorat explained in a conference call with analysts. “We do think it’s pretty peculiar. Some of it is supply chain, some of it is inventory. So just address that, and then I would say, there are other factors that are relevant.”

“So we’re working on those issues, but again, it’s really about continuing to invest in YouTube.”

Overall, Google’s ad revenue growth slowed to 11.6% to $56.3 billion. The cloud business, seen as a growth engine, posted revenue of $6.3 billion, up 35.6% year-over-year, but below expectations of $6.41 billion.

Shares of Google are up more than 7% as of this writing.

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YouTube has new opportunities

Investors fear the worst after social network Snap, it has to be said (SNAP) – Get Snap Inc. Class A Report “Forward visibility remains extremely challenging,” it said last week.

Investors worry that YouTube and Google’s ad revenue will be hurt by scaling back the companies’ promotional and marketing budgets to weather tough times. Online advertising is seen as one of the first sectors to be affected once the economy slows.

Judging by the results, Google and Youtube appear to have temporarily limited losses. Despite caution, the company appears to be sending a message that it can weather a potential downturn without major harm.

“Across YouTube and the web, the pullback in spending by some advertisers in the second quarter reflects uncertainty over a number of factors that are difficult to factor into other revenue in the third quarter. We expect changes in fees and a slowing economy to bring Continued headwinds, as well as buyer spending in the second quarter, weighed on the performance,” Prorat said.

But Senior Vice President and Chief Commercial Officer Philipp Schindler is more optimistic:

“While some advertisers have pulled back, we do believe YouTube is still well-positioned to benefit from the shift to digital video,” the executive said.

He explained that Youtube is testing different products and the feedback seems to be positive.

“We’re testing a lot of different things in Living Commerce. We’re excited about the opportunities here, especially connecting brands with creators. We’re also seeing advertisers buying YouTube on both ends of the funnel,” Schindler said.

“YouTube watch time has grown significantly, even as people have returned to live events. Time spent on YouTube continues to grow globally. As I said earlier, early results [in new] Monetization is also encouraging, and we’re excited about the opportunity here. “

Hiring slows but investing in cloud

However, Google didn’t want to be caught off guard by a sudden economic downturn. So it’s no surprise that the group insists it’s slowing hiring, which will allow it to cut costs.

“Given the uncertain global economic outlook and the hiring progress made so far, as Sundar previously announced, we intend to slow down the pace of hiring,” Prorat told analysts. “We expect our actions on recruitment to become more visible in 2023.”

The company said it will continue to invest in cloud computing to seize “opportunities” even if economic conditions call for caution.

“Customers are using GCP to transform their business [Google Cloud Platform] Secure infrastructure with data analytics and artificial intelligence, collaborative tools to discover real-time insights and leverage workspaces,” Prorat said. “They are in the early stages of this transformation and we will continue to invest in our products.

Google Cloud is far behind two industry leaders, Amazon (AWS) and Microsoft (Azure).

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