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April 26 (Reuters) – Google’s parent company Alphabet Inc (GOOGL.O) reported its first quarterly pandemic-related revenue shortfall on Tuesday after war in Ukraine hurt YouTube ad sales, leaving investors shaken as the global economy collapses.
The world’s largest search and video provider has made a fortune in the past two years as the pandemic forced more stores and people to go online. But surpassing those sales is proving difficult so far this year with war, rising inflation and product shortages causing advertisers to forego marketing campaigns, analysts say.
Alphabet chief financial officer Ruth Porat said it was too early to predict when war-stricken sales might resume and warned that the strengthening US dollar would hurt sales even more in the current quarter.
Alphabet shares, which have risen nearly 90% over the past two years, fell about 2.5% after Tuesday night’s results. They had fallen 3.6% in the regular session.
David Wagner, portfolio manager at Aptus Capital Advisors, expressed growing concerns about the macro environment. “Alphabet has been considered one of the most isolated companies in the ad space compared to its peers, but sometimes you can still own the best house in the worst neighborhood,” he said.
Alphabet said first-quarter sales reached $68.01 billion, up 23% from a year ago but below the average estimate of $68.1 billion among financial analysts. followed by Refinitiv, its first failure since the fourth quarter of 2019.
Notably, YouTube ad sales of $6.9 billion missed analysts’ target of $7.5 billion, according to FactSet.
Porat said the war in Ukraine that began in the quarter had an “outsized impact” on YouTube’s revenue as the company shut down ad sales in Russia and brand advertisers, particularly in Europe. , reduced their spending after the outbreak of fighting. Read more
Google globally made 1% of its sales in 2021 in Russia, Porat said.
She also reported moderate growth in sales to direct-response advertisers on YouTube, and added that app store fee reductions to address antitrust concerns had wiped out gains in subscription revenue.
Google’s “other” revenue, which includes sales of apps, hardware and subscriptions, was $6.8 billion, below estimates of $7.3 billion.
Quarterly profit was $16.44 billion, or $24.62 per share, missing expectations of $25.76 per share.
Alphabet also said its board had authorized an additional $70 billion in share buybacks. It has repurchased more than $81 billion in stock over the past two years.
Google is expected to grab 29%, or the top share, of the $602 billion global online advertising market in 2022, at least the 12th consecutive year it has led the way, according to Insider Intelligence.
Sophie Lund-Yates, chief equity analyst at Hargreaves Lansdown, said in a note that the macro environment could bring ups and downs for Alphabet, although the company remains indispensable to consumers and advertisers.
Last week, Snap Inc (SNAP.N) warned that inflation, labor shortages and other economic challenges could put pressure on ad revenue. Read more
Facebook’s parent company, Meta Platforms Inc (FB.O), the second-largest online advertising platform with an expected global market share of 21.4% in 2022, released its results on Wednesday. Its shares fell 2.5% on Tuesday after Alphabet’s results.
Growing competition from companies such as Amazon.com Inc (AMZN.O) and ByteDance’s TikTok is also squeezing Google ad sales. Yet retailers continue to pour money into advertisements, and travel and entertainment advertisers are once again on the rise. Additionally, Google is better positioned than its competitors to withstand economic shocks as its advertising tools tend to be among the last to be abandoned by advertisers as they are well known, easy to use and reach more users than alternatives.
Topping the list of risks the company faces are numerous lawsuits and investigations aimed at determining whether Google has engaged in anticompetitive behavior through its advertising and other activities.
The latest scrutiny focused on its pending $5.4 billion acquisition of cybersecurity services provider Mandiant, which the US Department of Justice is closely scrutinizing. Google said it still expects to close the deal this year. Read more
Google Cloud, the unit that would contain Mandiant, grew its first-quarter revenue 44% from a year ago to $5.82 billion.
Reporting by Nivedita Balu in Bengaluru and Paresh Dave in Oakland, California. Editing by Sriraj Kalluvila, Peter Henderson and Matthew Lewis
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