2 min Analytics

Alphabet profit falls 34% due to ads slow down

Alphabet profit falls 34% due to ads slow down

Alphabet, the parent of Google, is facing a period of stalled growth amidst the ongoing economic turbulence in Silicon Valley. Gone are the days of exponential profit and employee growth as the company navigates a slowdown in digital advertising.

In its latest financial statement, Alphabet posted its fourth consecutive drop in profit, with a net income decrease of 34% to $13.6 billion, falling short of expectations set by Wall Street of $15.3 billion.

The company’s sales for the last quarter of 2022 also saw a 1% decrease to $76 billion, which was in line with analysts’ predictions.

Re-engineering costs

The glory days of Alphabet’s meteoric rise can be attributed to the pandemic, which saw consumers spend more time and money online, leading to a surge in the advertising market, the company’s backbone. Alphabet CEO Sundar Pichai says the company is working to re-engineer its cost structure and build financially sustainable businesses.

Efforts include taming expenses, improving the financial performance of Pixel phones and other gadgets, making the cloud division profitable, and strengthening YouTube.

How Alphabet plans to respond

Alphabet will cut 6% of its workforce, 12,000 employees, and incur $1.9-$2.3 billion in severance and related charges. The company will also shed unnecessary real estate and manage supplier spending, using AI to automate tasks and boost productivity.

The company faces challenges such as the debut of OpenAI’s chatbot ChatGPT and a lawsuit from the Justice Department, claiming Google abused its advertising technology monopoly.

Google’s search engine revenue dropped 1% to $42.6 billion in Q4, while the ad technology division generated $8.5 billion, down 9% from a year earlier. YouTube advertising sales dipped 8% to $7.96 billion. Google Cloud sales increased 32% to $7.3 billion but recorded a loss of $480 million in Q4.