Google Ad Revenue Drops Again

Google reported a second straight drop in advertising revenue, extending a rare decline as the company navigates economic concerns and tries to capitalize on recent advances in artificial intelligence.

The Wall Street Journal reports Alphabet Inc., Google’s parent company, posted $54.5 billion in ad revenue for the first quarter, a decrease of less than 1% from the same period last year but a smaller decline than Wall Street anticipated. That is the third drop in ad sales since Google became a public company in 2004, and the second consecutive quarterly decline following a 3.6% drop in the fourth quarter.

Both Google and Microsoft Corp., which also reported earnings Tuesday, showed slowing growth but also areas of resilience that defied somber market expectations. Microsoft said revenue for the three months through March rose 7% from a year earlier, better than expected but marking the second-straight quarter below the company’s yearslong trend of double-digit percentage growth.

The online advertising market has remained wobbly as companies respond to an uncertain economic outlook. Last week, Facebook parent Meta Platforms Inc. Chief Executive Mark Zuckerberg told employees to expect a slower pace of hiring following the company’s latest rounds of layoffs.

Google is trying to jump-start growth during a period of heightened competition in AI, a technology that helps power the company’s search-ads business. Google combined its two main AI research groups into a unit called Google DeepMind last week, a move it said would significantly accelerate research.

Google also plans to add conversational AI features to its flagship search engine, following a similar move by rival Microsoft Corp., CEO Sundar Pichai said in an interview with The Wall Street Journal this month.

Alphabet’s total revenue increased by 2.6% from last year to $69.8 billion in the first quarter, aided by continued growth in the company’s cloud-computing unit. The company reported operating income of $17.4 billion in the first quarter, a decrease of 13% from the same period last year.

YouTube reported $6.7 billion of ads revenue in the first quarter, a decrease of 2.6% from the previous year. YouTube typically attracts a large amount of so-called brand advertising, an area that is quicker to fall off in times of uncertainty compared with search advertising, which usually has well-defined performance targets.

Google, which announced the largest layoffs in company history in January, has recently looked to further slash expenses. Employees were told last month to expect additional cost cuts this year in areas ranging from cafeteria hours to the company’s use of internal servers.