Alphabet revenue fell below analysts’ expectations in the third quarter, it announced on Tuesday, as it continues to battle an industry-wide tech slowdown.
The company reported a third quarter revenue of $69bn, up 6% from last year but lower than analyst estimates of $70.9bn. Like many tech and social media firms, Alphabet is struggling to compete with TikTok amid a broader economic downturn.
“Once again, YouTube growth slowed to a crawl amid tough competition from TikTok and other players in the video-streaming space,” said Jesse Cohen, senior analyst at Investing.com. “Alphabet is being negatively impacted by worsening macroeconomic headwinds, such as soaring inflation and worries about a possible recession.”
Chief executive Sundar Pichai said in a statement that Alphabet is “sharpening [its] focus on a clear set of product and business priorities”, including new ways to monetize YouTube shorts and improvements to Search and Cloud.
Shares were down more than 5% in after hours trading as the results bolstered ongoing concerns about the impact of recession fears and other macroeconomic headwinds. The miss comes after poor results from its smaller rival Snap sparked inflation fears in the tech sector and temporarily wiped out $40bn in market capitalization.
Advertising spending tends to slow during economic downturns, and Alphabet’s disappointing earnings show it is not immune to such challenges, experts said. Google’s advertising revenue was $54.5bn in the third quarter, compared with $53.1bn last year, but came in below analysts’ expectations.
YouTube ad revenue in particular shrank for the first time since the company started reporting YouTube earnings separately in late 2019, falling about 2% to $7bn from $7.2bn this time last year.
“Despite being seen as one of the most insulated companies in the advertising space relative to peers, Google’s poor quarter is the latest sign that worsening fundamentals and a tough macroeconomic environment are prompting advertisers to cut back on spending,” Cohen said.
Alphabet in August announced it would slow and even freeze hiring in some departments in response to these concerns. Chief financial officer Ruth Porat said in a call with investors on Tuesday that the slowdown will not become apparent until 2023. The company added nearly 13,000 employees in this quarter and expects to add less than half of that in the upcoming quarter.
“Within the slower headcount growth next year, we will continue hiring for critical roles, particularly focused on top engineering and technical talent,” she said, adding that the changes are part of an “optimization process” to free up resources.
The report comes as the tech sector makes a departure from years of gains throughout the pandemic. Microsoft also reported lower-than-expected earnings on Tuesday, with a 14% drop in profit for the July-September quarter compared to the same time last year.
With the ongoing slowdown and the difficult results from Alphabet, investors will be keeping a close eye on other tech giants this week as Meta, Amazon, Apple and Uber also share results in coming days.
“This disappointing quarter for Google signifies hard times ahead if market conditions continue to deteriorate,” said Evelyn Mitchell, principal analyst at Insider Intelligence.