The Google network has made this last quarter the weakest growth of its turnover in a decade, except for the beginning of the pandemic, a strong sign that the giants of digital advertising are less and less resistant to inflation and competition.
The Alphabet group published on Tuesday 25 October a turnover of 69.1 billion USD in the third quarter, up 6% year-on-year. Its net profit amounted to 14 billion USD, a result largely below expectations.
Its shares lost more than 6% in electronic trading after the close of the New York Stock Exchange.
As of September 30, 2022, YouTube’s advertising revenue fell by 2% to 7 billion USD, while the market was expecting a small increase.
“When Google stumbles, it’s a bad sign for digital advertising in general,” reacted Insider Intelligence analyst Evelyn Mitchell. “This disappointing quarter for Google bodes for tough times ahead if macro conditions continue to worsen.”
“This is the first time YouTube ad revenue has declined since the company began reporting it separately in late 2019, largely due to competition from streaming and short-form video formats” on mobile apps like TikTok, she noted.
Philipp Schindler, Alphabet’s vice president and chief sales officer, acknowledged on a conference call that some advertisers, including financial services, had “pulled back” from the platform.
Google, which is the world’s number one digital ad company, is suffering from budget cuts from brands plagued by inflation and rising interest rates. And its results suffer when compared to 2021, when pandemic and health restrictions largely favored online activity.
TikTok’s arrival also dented the dominance of Google and Meta (Facebook, Instagram) in this market. In 2021, the entertainment app surpassed Google as the most popular website in the world, according to Cloudflare, an internet service provider.
Big platforms have made good attempts to copy TikTok’s formats (Instagram has “Reels” and YouTube has “Shorts”), but they struggle to turn investment into profits.
“We’ve had periods of tremendous growth but also moments that I think serve to take time to optimize the business, to make sure we’re ready for the next decade of growth,” philosophized Sundar Pichai, the Mountain View group’s boss. “We are in one of those moments.”
Google has slowed hiring after hiring relentlessly during the pandemic. The company had nearly 187,000 employees as of Sept. 30, about 13,000 more than at the end of June.
But “we will continue to find new people for critical roles, including engineers,” CFO Ruth Porat said, as several of its California neighbors, from Netflix to Twitter to Snap, have let go of employees this year.
At the end of September 2022, Google announced the closure of its online video game platform Stadia, three years after the launch with great fanfare of this service allowing to play without console or computer, via the cloud.
At the same time, Google reaffirmed its ambitions in smartphones, with the launch of the Pixel 7. From July 2021 to June 2022, some 6.2 million of the brand’s handsets were shipped, up 129% year-on-year, according to figures from Canalys.
Google Cloud, on the other hand, is doing well: it continued to grow, with quarterly revenue of USD 6.9 billion, up from USD 5 billion in the same period last year.
But Pixel’s global market share remains tiny, and Google Cloud is the third largest cloud provider, far behind Amazon (AWS) and Microsoft’s Azure, which had 55% of the pie in August, according to Canalys.
The core of Alphabet’s business remains finely targeted advertising on a very large scale, which is frowned upon by authorities and many consumers.
Google recently added a new tool to give users more control over the content of ads that appear while browsing the Internet, hoping to reconcile with its users at a time when ads are blending more seamlessly with original content on services like TikTok and Instagram.
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