Alphabet Misses Revenue Expectations

Alphabet missed on both top and bottom lines when it reported fourth quarter earnings after the bell Thursday. The company’s stock dropped nearly 4% after hours, erasing some of the 7.28% it gained in normal trading hours. Here’s how the numbers stacked up according to CNBC:

• Earnings per share (EPS): $1.05 vs $1.18 per share expected
• Revenue: $76.05 billion vs. $76.53 billion expected
• YouTube advertising revenue: $7.96 billion vs. $8.25 billion expected
• Google Cloud revenue: $7.32 billion vs. $7.43 billion expected
• Traffic acquisition costs (TAC): $12.93 billion vs. $13.32 billion expected

The company said it would take a charge of between $1.9 billion and $2.3 billion, mostly in the first quarter of 2023, related to the layoffs of 12,000 employees it announced in January. It also expects to incur costs of about $500 million related to reduced office space in Q1, and warned that other real-estate charges are possible going forward.

CFO Ruth Porat said during the company’s earnings call that Alphabet added 3,455 people during the quarter, the majority of which were technical roles.

Ruth Porat

Porat told CNBC’s Deirdre Bosa that the company is meaningfully slowing the pace of hiring in an effort to deliver long-term profitable growth, and blamed the YouTube slowdown on a pullback in both planned and direct response advertising in a challenging economic climate.

YouTube advertising revenue fell short of analyst expectations to $7.96 billion — down 8% from $8.63 billion the year prior. In December, the National Football League announced YouTube will pay roughly $2 billion a year for the residential rights of the “Sunday Ticket.” The deal runs for seven years.

In addition to the overall pullback in ad spending, YouTube is also facing heightened competition from TikTok in short-form videos. YouTube shorts now has 50 billion daily views, CEO Sundar Pichai said in a call with investors Thursday.

Other Highlights:

• Google Cloud brought in $7.32 billion — less than analysts expected, although it was a 32% increase from the year prior. It also cut its losses dramatically, from $890 million a year ago to $480 million in Q4.
• Google’s Search and Other revenue came in at $42.60 billion, down 2% from the year prior, the report showed. Executives said it saw further pullback in spend by some advertisers in Q4 over Q3.
• Google’s Other Revenues, which includes hardware and non-advertising YouTube revenue, came in at $8.8 billion, up 8% from the year prior.

Operating expenses shot up 10% to $22.50 billion, driven by headcount growth, charges for legal matters and lower ad spend, executives said Thursday. The company also said it lost $1.49 billion on equity securities during the quarter.