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Shares in Google parent Alphabet fell nearly 5% in after-hours trading Thursday, after the tech giant said it missed revenue and earnings estimates for the fourth quarter.
Why it matters: Alphabet and its stock thrived during the pandemic. Now, an ad slowdown and its big investment in headcount are challenging its earnings growth just as it's entering a new phase of competition with Microsoft and others in AI.
- "We have significant work underway to improve all aspects of our cost structure, in support of our investments in our highest growth priorities to deliver long-term, profitable growth," CFO Ruth Porat wrote in a letter to investors.
Details: The company blamed an ad slowdown at YouTube for missing estimates.
- YouTube advertising was down more than 7% last quarter compared to the same quarter the previous year, causing Alphabet's overall revenue growth for the quarter to drop to just 1% year over year.
Be smart: For years, YouTube has been one of Google's strongest advertising growth engines. Executives said YouTube saw a slowdown in brand ads, or ads that tout a company's reputation, and direct response ads, which push sales.
Between the lines: Like rival Meta, Google said it would take a loss of $4.2 billion, mostly in the first quarter, for restructuring costs related to severance payments to 12,000 recently-laid off employees.
- It also expects to take a roughly $500 million loss related to reduced office space plans this quarter.
By the numbers, via CNBC:
- Earnings per share: $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 big picture: Despite a slowdown in ads, executives pledged to continue Google's artificial intelligence push.
- “Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflection point, and I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond," CEO Sundar Pichai said in the company's investor letter.
- The company also said it would separate its artificial intelligence company DeepMind from its other investments when reporting earnings, a nod to its commitment to growing in that space.
- "AI is an Alphabet strategic priority," Porat said, and the reporting change "reflects strategic focus."
What to watch: Despite record regulatory scrutiny and major market shifts, Google continues to take big swings. YouTube successfully won the NFL's very lucrative Sunday Ticket package, giving it exclusive rights to air out-of-market NFL games beginning next season.