Alphabet Misses on Earnings and Revenue as YouTube Falls Short

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  • The company missed top and bottom line expectations for the fourth quarter.

Alphabet missed on both top and bottom lines when it reported fourth quarter earnings after the bell Thursday. The company's stock dropped nearly 4% after hours, erasing some of the 7.28% it gained in normal trading hours. Here's how the numbers stacked up:

  • Earnings per share (EPS): $1.05 vs $1.18 per share expected, according to Refinitiv 
  • Revenue: $76.05 billion vs. $76.53 billion expected, according to Refinitiv
  • YouTube advertising revenue: $7.96 billion vs. $8.25 billion expected, according to StreetAccount estimates.
  • Google Cloud revenue: $7.32 billion vs. $7.43 billion expected, according to StreetAccount estimates
  • Traffic acquisition costs (TAC): $12.93 billion vs. $13.32 billion expected, according to StreetAccount estimates

The company said it would take a charge of between $1.9 billion and $2.3 billion, mostly in the first quarter of 2023, related to the layoffs of 12,000 employees it announced in January. It also expects to incur costs of about $500 million related to reduced office space in Q1, and warned that other real-estate charges are possible going forward.

CFO Ruth Porat said during the company's earnings call that Alphabet added 3,455 people during the quarter, the majority of which were technical roles.

Porat told CNBC's Deirdre Bosa that the company is meaningfully slowing the pace of hiring in an effort to deliver long-term profitable growth, and blamed the YouTube slowdown on a pullback in both planned and direct response advertising in a challenging economic climate.

YouTube advertising revenue fell short of analyst expectations to $7.96 billion — down 8% from $8.63 billion the year prior. In December, the National Football League announced YouTube will pay roughly $2 billion a year for the residential rights of the “Sunday Ticket." The deal runs for seven years.

In addition to the overall pullback in ad spending, YouTube is also facing heightened competition from TikTok in short-form videos. YouTube shorts now has 50 billion daily views, CEO Sundar Pichai said in a call with investors Thursday.

Google Cloud brought in $7.32 billion — less than analysts expected, although it was a 32% increase from the year prior. It also cut its losses dramatically, from $890 million a year ago to $480 million in Q4.

Google’s Search and Other revenue came in at $42.60 billion, down 2% from the year prior, the report showed. Executives said it saw further pullback in spend by some advertisers in Q4 over Q3.

Google's Other Revenues, which includes hardware and non-advertising YouTube revenue, came in at $8.8 billion, up 8% from the year prior.

Operating expenses shot up 10% to $22.50 billion, driven by headcount growth, charges for legal matters and lower ad spend, executives said Thursday. The company also said it lost $1.49 billion on equity securities during the quarter.

Revenue in Alphabet’s Other Bets segment, which includes self-driving car unit Waymo as well as some health-tech projects and the company’s venture arms, rose to $226 million — up from $181 million from a year earlier. The unit lost $1.63 billion during the quarter, that's up from a year prior at $1.45 billion.

Executives said starting in the first quarter, artificial intelligence subsidiary DeepMind will no longer be reported in Other Bets, but will be reported as part of Alphabet's corporate costs.

Executives on the call reiterated the company is focused on AI. CEO Sundar Pichai said "Very soon, people will be able to interact directly with our newest, most powerful language models as a companion to Search, in experimental and innovative ways."

CNBC previously reported that Google is internally experimenting with several potential products that could influence its search business. The company is feeling pressure from the popularity of AI-based chatbot ChatGPT, launched late last year by Microsoft-backed OpenAI. Executives previously teased that the company may introduce a similar product to the public at some point this year.

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