Big Tech shares tumbled after Alphabet reported an unexpected slowdown in its core search ads business that rocked the digital advertising and e-commerce worlds and stoked fears of an economic slowdown in the United States. United.
Alphabet shares fell more than 8% shortly after the opening bell on Wall Street on Wednesday after the largest seller of digital advertising in the United States announced on Tuesday evening that third-quarter revenue had increased 6% to $69.1 billion. Except for a brief contraction at the start of the pandemic, it was the slowest rate of growth since 2013 and fell short of analysts’ expectations for a 9% increase, according to Refinitiv.
Microsoft added to the tech sector’s gloom by warning on Tuesday of a sharp slowdown in its cloud computing business in the coming months. Like search advertising, cloud computing was seen as less vulnerable to an economic downturn than other segments of the technology market.
Microsoft shares fell 8% at the start of Wednesday’s session after lackluster results. The news, which came at the start of Big Tech’s earnings season, sparked a sell-off in shares of other industry leaders. Meta, which reports this afternoon, and Amazon, were both down more than 4%. The tech-heavy Nasdaq Composite fell 1.7%, while the broader S&P 500 lost 0.5%.
“This doesn’t bode well for digital advertising in general,” said Insider Intelligence analyst Evelyn Mitchell. “This disappointing quarter for Google means tough times ahead if market conditions continue to deteriorate.”
Google search revenue rose 4.2% to $39.5 billion, missing growth forecasts of 8%, while YouTube ad revenue fell 2% to $7.1 billion. dollars against analysts’ expectations for a 4.4% increase. It was the first decline in YouTube ad sales since the company began reporting on its performance separately in 2020.
On a call with investors, Alphabet chief executive Sundar Pichai said it was “a tough time in the advertising market.”
Ruth Porat, chief financial officer, said the slowdown was due to the company “catching up with the very strong third quarter” in 2021, when it benefited from a shift to online advertising during the coronavirus pandemic. But she said there had been “a pullback in advertiser spending in some areas.”
Alphabet reported diluted earnings per share of $1.06 for the quarter compared to $1.40 for the same period last year and lower than the $1.25 expected by analysts.
The poorly received results were the latest sign of a slowdown in digital advertising and the world’s biggest economy in general, as consumers and businesses cut spending at a time of soaring inflation. Marketing budgets are often the first things companies turn to when trying to cut costs.
On Tuesday, a closely watched indicator of consumer confidence fell to its lowest level in more than a year. The so-called Current Situation Index, released by the Conference Board, fell to 138.9, the weakest reading since April 2021.
Lynn Franco, senior director of the Conference Board, said the sharp drop in the index suggested economic growth had slowed at the start of the fourth quarter and called consumer expectations “dismal”.
Spotify, the audio streaming service provider that counts the United States as its biggest market, said on Tuesday that a “challenging” economic environment hit its advertising sales in the third quarter, contributing to higher losses despite a strong growth of its core subscription sales business.
Last week, sharing in Snap, the developer of Snapchat, lost almost a third in value after saying advertisers continue to cut marketing budgets due to inflation and rising costs.
Revenue for Alphabet’s fast-growing Google Cloud unit rose 38% to $6.9 billion, but the division still reported a net loss of $699 million vs. a loss of $644 million a year ago.
Pichai told investors the group is “refining our focus on a clear set of product and business priorities.”
The strong U.S. dollar dented revenue growth by 5 percentage points, according to Porat, who said the company was “working to realign resources to fuel our greatest opportunity for growth.”
Alphabet’s earnings set the stage for Meta, Facebook’s parent company, which reports results on Wednesday. Analysts expect its revenue to have fallen 5% in the third quarter.
Additional reporting by Anna Nicolaou and Richard Waters