Google’s ongoing ad slump weighs on Alphabet’s 1Q results

Google’s advertising malaise continued in the first quarter, while the internet company also grapples with advances in artificial intelligence technology that threaten to undermine its dominant search engine


MICHAEL LIEDTKE AP Technology Author

Apr 25, 2023 4:41pm ET

• 4 minutes reading time

An unprecedented decline in digital ad revenue for Google — the company’s top moneymaker for more than 20 years — came on Tuesday with the release of January-March earnings from owner Alphabet Inc.

Though Alphabet’s total revenue for the period was up year over year, Google’s first-quarter ad sales of $54.5 billion marked a slight year-over-year decline. That decline followed a nearly 4% drop in the last three months of last year, marking the first time Google has seen a consecutive year-over-year decline in ad revenue since becoming a publicly traded company in 2004.

Fueled by growth in its cloud computing division, Alphabet’s total revenue for the quarter was $69.8 billion, up 3% year over year. But the advertising problems weighed on Alphabet’s revenue. The Mountain View, Calif., company earned $15.05 billion, or $1.17 per share, down 8% year over year. More than $2 billion in costs related to mass layoffs and other cost-cutting contributed to the decline in earnings.

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Both Alphabet’s revenue and earnings beat the moderate expectations of analysts polled by FactSet Research. That — and a $70 billion share buyback plan — helped lift Alphabet’s stock price about 2% in extended trading after the numbers were released. Shares of the company have fallen about 15% over the past year as investors worried about Google’s ad slump and worries about the company’s future prospects.

“Google’s core business is facing its biggest challenges in a while,” said Max Willens, an analyst at Insider Intelligence, after evaluating first-quarter results.

In January, to prop up its profits, Alphabet announced plans to lay off 12,000 employees, or 6% of its workforce, in by far the largest pay cut in its history. But the layoffs weren’t completed before the end of the quarter, leaving Alphabet with more than 190,000 employees as of March 31, about the same number as on December 31, after the company hired nearly 34,000 people last year. Alphabet expects its workforce to reflect recent layoffs by the end of June.

Alphabet CEO Sundar Pichai said management remains focused on identifying “areas for lasting savings,” but gave no details during a discussion with analysts on Tuesday.

Google’s recent ad slump largely reflects more cautious spending from companies responding to a slowdown in discretionary consumer spending. Rising inflation has led to a rise in interest rates that could culminate in a recession.

Another threat is the ChatGPT artificial intelligence bot that is being integrated into Microsoft’s Bing search engine, raising concerns that Google could face a longer-term threat to its own search engine.

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If people use ChatGPT and Bing as a better way to find what they’re looking for, it could pull traffic away from the Google search engine — long the web’s main gateway. That would depress Google’s ad sales.

Google is trying to counter with its own alternative called Bard, but has so far limited itself to ensure that Bard doesn’t offend billions of users and advertisers in the process, and to reduce the likelihood of it producing misinformation and other fakes.

Promising that Bard has “much more to offer,” Pichai told analysts Tuesday that Alphabet is “excited to help people, businesses and society reach their full potential with AI.”