Inflation and competition slow Google down

From April to June, Alphabet’s sales reached $69.7 billion, up 13%.

San Francisco. In the second quarter, Google’s net income declined and growth slowed, but the market was expecting the worst due to the reduction in advertising budgets due to the economic crisis.

Alphabet’s (GOOGL) parent company’s net income fell 13% year-on-year to $16 billion last quarter, according to a statement released Tuesday.

From April to June, the California group achieved sales of $69.7 billion, representing a 13% increase.

This is the weakest annual revenue growth since the second quarter of 2020, when advertisers abruptly closed the floodgates at the beginning of the pandemic, in particular tour operators.

If it were not for the adverse impact of exchange rates, the company would have recorded growth of 16%.

Sundar Pichai, head of Alphabet, noted that the search engine’s advertising revenue and cloud computing (remote computing) contributed to the group’s growth with $40.7 billion and $6.3 billion in revenue, respectively.

YouTube made $7.3 billion, up just 4.8% year on year.

On Wall Street, the company’s shares rose about 1.4% in electronic trading after the close.

The results of the world leader in online advertising were expected by the market as a kind of sector barometer, especially after the results of Snap (SNAP) and Twitter (TWTR) last week.

Marketing budgets cut

App parent company Snapchat (SNAP, $9.63, -3.36%) fell 40% the day after financial results were deemed disappointing despite a notable increase in user numbers.

Meanwhile, Twitter (TWTR, $39.34, +0.23%) noted the “headwinds” in the industry that led to a net loss for the latest quarter.

“Investors expected disaster for Alphabet, but the numbers ended up being slightly better than they feared,” said Dan Ives of Wedbush Securities.

“After the Snap disaster, the growth of ads on Google should give the market and the tech community some confidence,” the analyst said.

This quarter, Google has experienced “an unfavorable year-over-year comparison, a disruption to its operations in Russia, and macroeconomic conditions that are drastically cutting advertising budgets,” said Evelyn Mitchell of Insider Intelligence firm.

Rampant inflation, rising interest rates and supply chain problems are forcing many companies to cut their marketing budgets.

Even more worrying for Alphabet, Meta (Facebook, Instagram) and Amazon is that consumer habits during the pandemic seem to be less ingrained than the market suggested.

Online sales platform Shopify announced on Tuesday that it is laying off 10% of its employees (about 1,000 people).

Because, even if the share of e-commerce grew well, it returned to the level expected before the health crisis skewed the Canadian group’s forecasts.

“Market saturation”

Established social networks are also facing the rise of young ultra-popular apps, starting with TikTok, which quickly captures the attention of users with its short and engaging videos.

“On YouTube, competition only intensified in the second quarter as TikTok launched new products and ad formats,” said Evelyn Mitchell.

“It remains to be seen if Google’s huge investment in YouTube Shorts, a copycat of the TikTok format, will turn a profit,” the analyst added.

According to Insider Intelligence, Google is expected to generate about $175 billion in net advertising revenue in 2022, or 29% of the global advertising pie.

Alphabet’s second-quarter results “demonstrate the saturation of the market and the lack of control over costs that have plagued them time and time again,” said independent analyst Rob Enderle.

The US group, which has more than 174,000 employees worldwide (+21% YoY), has been recruiting everywhere during the pandemic, just like its West Coast neighbors.

But he recently announced a hiring slowdown for the rest of the year and even put all new offers on hold for two weeks “to allow teams to prioritize,” according to a spokesperson.

Many other tech companies have chosen to lay off employees (including Netflix and Twitter) or slow down their hiring pace, such as Microsoft and Snap.


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