Google’s advertising revenue fell 4 percent in the final quarter of last year, marking only the second quarterly contraction in the company’s history, according to figures released last Thursday.
The decline in advertising led to a sharp slowdown in Google’s business last year as economic growth weakened and a pandemic-driven boom in digital services ebbed. It left parent Alphabet with overall revenue growth of just 1 percent, compared to a 32 percent jump in its registered business the previous year. Revenue would have grown 7 percent if not for the strong US dollar.
The news represented a sharper deceleration than analysts had expected and sent the company’s shares down about 4 percent in after-market trading.
Google also reported a decline in operating profit margins as cost growth outpaced revenue, causing earnings per share to drop 32 percent, to $1.06. Wall Street expected earnings of $1.18 per share.
The latest figures will deepen Wall Street’s focus on Alphabet’s expenses. Last month, it announced 12,000 job cuts, although it is still under fire from activist investors for not taking more drastic measures.
The company is “on an important journey to re-engineer our cost structure in a sustainable way”, chief executive Sundar Pichai said in a statement ahead of the call with analysts.
Alphabet said it would incur costs of $1.9bn-$2.3bn as a result of job cuts and another $500m due to reduced office space, mostly in the first quarter of this year.
Google executives sought to use the company’s earnings call with analysts to convince Wall Street that they are racing to release a new round of AI services. In his first public comments since ChatGPT challenged the search business, Pichai said Google would act “very quickly” to give users a way to “connect directly with the latest and most powerful language models . . . in experimental and innovative ways”.
In another sign that Alphabet is refocusing its investments around AI, chief financial officer Ruth Porat said the financial results of British research arm DeepMind will be taken from the Other Bets division and treated as direct company expenses. The move, which represents DeepMind’s closer integration with the rest of Alphabet, reflects the fact that its work is becoming important to many parts of the group’s business, Porat said.
Revenue growth from cloud computing fell to 32 percent in the fourth quarter of last year, down from 38 percent in the previous three months — a sharper deceleration than analysts had expected. Advertising on YouTube, which suffered more from the economic downturn than its search business, fell 8 percent after registering a 2 percent decline in the third quarter.
Google’s first decline in revenue began at the start of the Covid-19 crisis, as many advertisers suspended their ad budgets, but growth is picking up again as digital spending surges during the pandemic.