Bartis HK - This internet titan is still facing significant macroeconomic challenges

The stock price of Alphabet Inc. (GOOG) fell 7% in after-hours trade on Tuesday, Oct. 25, following the release of its third-quarter report. The internet titan's revenue increased 6% year over year to $69.1 billion.
CENTRAL, Hong Kong - April 10, 2023 - PRLog -- During the third quarter, GOOG derived 79% of its income from their advertising division (which includes search advertisements, YouTube, and the advertising network). It earned 10% of its income from GOOG's non-advertising companies (such as Google Play, YouTube subscriptions, and hardware products) and another 10% from Google Cloud, the world's third-largest cloud infrastructure platform. Here's how those three key companies have performed over the last three years.

GOOG's advertising revenue slowed in 2020 as the pandemic reduced ad sales. It rebounded well in 2021 as the headwinds eased, but struck three big speed bumps in the first three quarters of 2022.

First, macroeconomic challenges hampered the market's desire for digital advertisements, which was worsened by difficult year-over-year comparisons to the market's post-pandemic rebound. Second, YouTube appeared to be struggling to compete with ByteDance's TikTok and other short video opponents. These factors cut YouTube's revenue by 2% year on year in the third quarter, the first decline since GOOG began releasing its results separately in 2019.

Finally, the rising dollar, which is expected to strengthen as interest rates increase, cut GOOG's overall ad income dramatically. On a constant-currency basis, GOOG's overall revenue climbed 11% year over year in the third quarter, but it was nevertheless a decline from the company's 16% constant-currency revenue growth in the second quarter.

Google Cloud continues to expand, most recently by acquiring cybersecurity firm Mandiant in September. Unfortunately, the cloud segment's growth hardly offset GOOG's other divisions slowing down in the third quarter, and it remains unprofitable. This year, GOOG's operating margins and net income have been cut by the slowing growth of GOOG's higher-margin advertising business, the continuous development of its unprofitable cloud business, and rising currency headwinds.

GOOG provided no specific guidance for the fourth quarter or the entire year. However, CFO Ruth Porat cautioned during the conference call that the firm will face an "even stronger headwind from foreign exchange" in the fourth quarter as its advertising business continued to suffer with "difficult compares" to its "extremely good revenue performance last year."

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