Alphabet’s quarterly revenue growth fell to its slowest pace in two years, but the online advertising giant said its search and cloud businesses fared well despite mounting macroeconomic headwinds.
The Google The parent company on Tuesday reported a 13 percent rise in revenue during the June quarter to $69.7 billion, missing estimates by $70.8 billion and marking the fourth straight quarterly slowdown from a year earlier.
Operating margins also fell to 28 percent, 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 were $1.21, compared to analysts’ estimates of $1.27.
But Alphabet Chief Financial Officer Ruth Porat called the company’s second-quarter results “solid,” noting that revenue rose 16 percent on a constant currency basis.
She told analysts that any apparent weakness could be explained by a surge in demand from the previous year, when Google benefited from the coronavirus-induced work-from-home trend after the initial shock of the virus outbreak. Twelve months ago, revenues had jumped 62 percent year after year.
“Last year’s very strong revenue performance continues to create difficult results that will impact annual advertising revenue growth rates for the remainder of the year,” Porat said.
Alphabet executives often cited “uncertainty” in their prepared remarks, saying the tough macro environment was causing widespread supply chain and inventory problems that were causing companies to spend less on ads.
One disappointment was YouTube, where $7.3 billion in revenue missed forecasts of $7.5 billion. “On YouTube and [Google] Network, the reduction in spending by some advertisers in the second quarter reflects uncertainty about a number of factors that are difficult to disentangle,” said Porat.
She said the results showed “strength in search and momentum in the cloud.” Google’s cloud division’s revenue rose 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 rose 13 percent to $40.7 billion, slightly beating estimates.
Other Bets, the division that houses Google’s self-driving unit, Waymo, posted a loss of $1.7 billion, down from a loss of $1.4 billion a year ago.
Exchange rate movements in the last quarter amounted to 3.7 percent, and Porat warned investors that expect “even more headwinds” this quarter as the US dollar trades at a 20-year high.
Shares jumped more than 5 percent in after-hours trading as investors were “relieved” that the results weren’t worse, said Jesse Cohen, senior analyst at Investing.com, who described the quarter as “disappointing.” . . in almost all business units”.
Analysts had expected a weak quarter, and in recent weeks projections have been cut further as fears of a US recession intensified and smaller rivals such as Snap announced insufficient earnings.
Revenue growth of 13 percent put Alphabet on a clear downward trajectory. Growth was 23 percent in the March quarter, 32 percent in the December quarter and 41 percent in the September quarter.
Chief Executive Sundar Pichai told analysts that the time was right for Alphabet to “sharpen its focus” but assured investors that the group would continue to make large, long-term investments.
“Personally, I find moments like this enlightening,” Pichai said. “It’s an opportunity to digest and . . . make sure we’re working on the right things. . . taking a long-term view, ensuring that we continue to invest in deep technology and computing. . . and reallocate resources to our most critical priorities.”
Alphabet, what this month said it would slow down employment by the end of 2022, it added 10,108 people in the quarter, with the majority employed in technical positions.