Alphabet revenue misses estimates on YouTube, Europe ads 2022-04-26 16:15:19

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(Bloomberg) — Alphabet Inc, the parent company of Google, reported first-quarter revenue that didn’t live up to analyst expectations, a rare loss for the tech giant that reflects slowing ad sales in Europe and the lackluster performance of the YouTube video service. Shares were down about 6% in extended trading.

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The company also announced a $70 billion share buyback program.

Revenue, excluding payments to distribution partners, increased 20% to $56 billion in the period ended March 31, Alphabet said in a statement Tuesday. Analysts, on average, expected $56.1 billion.

Chief Financial Officer Ruth Porat said the company’s revenue has been affected by the suspension of its business activities in Russia and wider unrest as a result of the invasion of Ukraine.

“Moreover, there has been a decline in ad spending in Europe,” she told Bloomberg TV. In addition, she said, “there is a lot of uncertainty in the macro environment.”

The company was facing a tough comparison from the quarter a year ago when it posted 32% growth in ad sales thanks to a resurgence in business after the introduction of Covid-19 vaccines that helped curb the virus and lift lockdowns. This year, Google ad sales grew 22% in the first quarter.

YouTube generated $6.87 billion in ad revenue, compared to the average analyst estimate of $7.4 billion. In previous quarters, Google said that banning Apple Inc. Targeting third-party ads has curtailed some YouTube business on iPhones. Ahead of earnings, BMO Equity Research analyst Daniel Salmon cut YouTube sales estimates in part to reflect increased competition from video app TikTok of ByteDance Ltd.

Google’s second largest line of business, its network system that displays ads elsewhere on the web, is likely restricted by new regulations in Europe that have restricted ad targeting. Total revenue in Europe was up 19% from the previous year, but down 12% from the fourth quarter.

However, Brian Wieser, global head of business intelligence at advertising agency GroupM, said Google’s advertising growth remains healthy. “Google is a third of the industry per se. They’re still growing north of 20%,” he said. “The issue is the outlook, not the company.”

Google’s search advertising business, the company’s main revenue driver, rose 24% to $39.6 billion. Cloud unit sales increased 44% to $5.82 billion. Both units topped the ratings. In recent years, the Mountain View, California-based company has spent heavily on machinery and staff to try to catch up with market leader Amazon.com Inc. and Microsoft Corp. In providing computing power and online storage.

This quarter has produced “strong growth in search and cloud, in particular, helping individuals and businesses alike as digital transformation continues,” CEO Sundar Pichai said in the statement.

Alphabet’s Other Bets units — a patchwork of start-ups that include self-driving car company Waymo and Verily, which aims to solve many health problems with technology — generated $440 million in revenue against $1.16 billion in losses, although that amounted to Great improvement from previous years.

Net income was $16.4 billion, or $24.62 per share, compared to $17.9 billion, or $26.29 per share, in the same period last year. Analysts expected, on average, $25.71 per share.

Alphabet shares fell to as low as $2,207.79 in extended trading after closing at $2,373 in New York. The stock has fallen about 14% this month.

(Updates with comments from the CFO in fourth paragraph.)

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