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Google’s parent company Alphabet (GOOG, GOOGL) reported fourth-quarter results after the bell on Tuesday, which fell short of analysts’ expectations for advertising revenue, the core of the tech giant’s business.
Shares fell 4% in extended trading.
Third-quarter revenue excluding traffic acquisition costs was $72 billion, compared to expectations of nearly $71 billion. This is more than the $63.12 billion the company generated in the same period last year. But investors seem to be paying attention to the advertising failure.
The company reported that its cloud business is continuously growing and gaining importance to investors due to its usefulness in AI development. Google Cloud’s revenue exceeded expectations, exceeding $9 billion, up 26% year-over-year. The company is aiming to gain more market share in the cloud computing market, currently in third place behind competitors Amazon (AMZN) and Microsoft (MSFT).
Here are some of Alphabet’s most important metrics compared to what Wall Street expected for the company’s fiscal fourth quarter, according to Bloomberg data.
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Revenue excluding traffic acquisition costs: $72.32 billion vs. $70.97 billion expected ($63.12 billion in Q4 2022)
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Adjusted earnings per share: $1.64 vs. $1.59 expected ($1.05 in Q4 2022)
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Cloud revenue: $9.19 billion vs. $8.95 billion expected ($7.32 billion in Q4 2022)
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Advertising revenue: $65.5 billion vs. $65.8 billion expected ($59.04 billion in Q4 2022)
In a call with analysts, CEO Sundar Pichai and CFO Ruth Porat highlighted the importance of streamlining the business to achieve cost reductions and efficiencies.
“Across our various teams, we have scaled back some non-priority projects that will help us invest in growth areas and keep things running smoothly,” Pichai said.
Porat said the company is focused on removing organizational layers to increase efficiency, and as a result, the pace of hiring has slowed. However, he added that the company will continue to invest in its top talent.
The earnings report comes just weeks after Google laid off hundreds of employees across multiple departments in an effort to cut costs and focus on growth areas including AI. The tech giant will join its U.S. peers and others that have relied on layoffs to improve efficiency as they expand significantly during the coronavirus era.
Google executives also addressed concerns that advances in AI could disrupt the company’s search products as generative AI chatbots change the way people interact with the web.
Pichai said the AI tools expand Google’s arsenal of providing breadth and depth of information to users who seek diverse sources online.
Google is widely seen as trying to catch up with Microsoft, which was among the tech industry’s first to enjoy the cultural excitement around consumer AI chatbots. Microsoft has invested in OpenAI, the company behind the popular chatbot ChatGPT.
Google has embarked on a number of initiatives both to power its search tools with AI (Bard and Search Generative Experience) and to deliver new advanced large-scale language models like Gemini.
Hamza Shaban is a reporter for Yahoo Finance, covering markets and economics. Follow Hamza on Twitter @hshaban.
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