Online advertising companies have been warning of a slowdown in ad demand amid high inflation and recession fears, and despite its size, Google has been no exception.
Sales from Google’s core advertising business hit $56 billion during the three months ended June 30, the company reported Tuesday. That marks an increase of 11.6% year-over-year, but it’s a significant slowdown in growth rate from the same quarter last year, during which it posted a nearly 69% increase in ad revenue as it benefited from a pandemic boom in online advertising.
Google also narrowly missed Wall Street analysts’ expectations for both sales and profits during the quarter. The company posted revenues of $69.7 billion during the quarter, an increase of 13% from the prior-year quarter, compared to the $69.9 billion analysts had projected. Net income for the quarter fell more than 13% year-over-year to $16 billion, missing Wall Street estimates of $17.3 billion.
Still, investors did not appear to be phased by the results, perhaps thanks in part to (TWTR)%20says%20%27uncertainty,twitter%2Dearnings%2Dmusk” target=”_blank”>similar ad sales growth slowdowns reported by Twitter (TWTR) and Snap (SNAP) last week. Shares of Google (GOOGL) parent Alphabet rose more than 2.5% in after-hours trading Tuesday following the report.
Microsoft (MSFT) on Tuesday also reported that it took a revenue hit of $100 million during the quarter from a reduction in advertising spend.
During a call with Wall Street analysts Tuesday, Alphabet CFO Ruth Porat pointed to “pullbacks in spend by some advertisers,” including due to economic uncertainty and “lower engagement levels” with its products compared to during the pandemic.
Google’s Search advertising is often considered better insulated from economic issues than other online ad formats. Still, the challenging macroeconomic environment may continue to weigh on Google’s business in the upcoming quarters. Google earlier this month said it plans to slow its pace of hiring and rethink investments for the remainder of this year amid the market downturn and economic uncertainty.
“We are focused on hiring engineering, technical and other critical roles … and we are working to increase productivity,” Alphabet CEO Sundar Pichai said on Tuesday’s call.
“It’s a privilege to build technologies that are helpful in good times, and in uncertain ones,” Pichai added.
A bright spot from Google’s earnings was a nearly 36% year-over-year revenue increase from its cloud computing segment.
“Whilst advertising spends will go up and down on economic cycles, the overall shift to Cloud computing as the backbone for all digital business — advertising, marketing and sales — is long term,” Tom Johnson, global chief digital officer at media agency Mindshare Worldwide, said in an investor note following Google’s earnings report.