Alphabet, the parent company of Google, released its fourth quarter earnings report on Tuesday, missing analysts’ expectations for ad revenue. The company’s stock price fell by 4% in extended trading as a result.
Despite the miss, Alphabet’s revenue, excluding traffic acquisition costs, came in at $72 billion, exceeding the $63.12 billion generated during the same period in the prior year. The company’s adjusted earnings per share were $1.64, slightly above the $1.05 reported in Q4 2022.
One bright spot in Alphabet’s earnings report was the performance of its cloud business. Google Cloud revenue crossed $9 billion, a 26% jump from a year ago, and beat expectations. The company has been aggressively pursuing market share in the cloud computing market, where it currently sits in third place behind Amazon and Microsoft.
However, the company’s ad revenue, which is the core of its business, missed expectations. Ad revenue came in at $65.5 billion, below the $65.8 billion expected by analysts. This marks the fifth consecutive quarter that Alphabet’s ad revenue has failed to meet expectations.
During a call with analysts, CEO Sundar Pichai and CFO Ruth Porat emphasized the importance of streamlining the business to achieve cost savings and efficiency. They noted that the company has been winding down non-priority projects and reducing organizational layers to boost efficiency, resulting in a slower pace of hiring. However, they assured investors that the company will continue to invest in top talent.
The earnings report comes amidst a broader effort by Alphabet to refocus its resources on growth areas, including AI. The company has been investing heavily in AI research and development, and has introduced new AI-powered tools such as Bard and Search Generative Experience to enhance its search products.
When asked about the potential impact of AI on Google’s search products, Pichai emphasized that AI tools expand the company’s arsenal and offer users a diversity of sources online. He noted that AI chatbots like ChatGPT, which has gained significant cultural attention, are not a threat to Google’s search business, but rather complementary to it.
Overall, Alphabet’s mixed earnings report highlights the challenges the company faces in balancing its legacy businesses with emerging opportunities in AI and cloud computing. While the company’s cloud business showed strong growth, its ad revenue struggled, reflecting the intense competition in the digital advertising space. As Alphabet continues to navigate these changes, investors will likely remain cautious about the company’s prospects in the near term.