Alphabet (GOOG, GOOGL) shares dropped early Wednesday after the Google parent’s core advertising business narrowly missed market estimates for the fourth quarter, overshadowing gains in other metrics of the company.
Earnings came in at $1.64 a share for the December quarter, up from $1.05 the year before, the technology giant said late Tuesday That topped the Capital IQ-polled consensus of $1.60. Revenue advanced 13% to $86.31 billion, ahead of the Street’s view for $85.28 billion.
Google advertising revenue increased to $65.52 billion from $59.04 billion in the 2022 quarter, but fell short of the $65.81 billion estimate on Visible Alpha. Shares of the company were down 5.7% in premarket trading.
“We see continued upside for long-term advertising growth,” Chief Business Officer Philipp Schindler said on an earnings call, according to a Capital IQ transcript. “Advertising generates the bulk of our revenue, and we continue to invest heavily here.”
Google Search and other advertising revenue climbed 13% to $48.02 billion, “led again by growth in retail,” Chief Financial Officer Ruth Porat said on the call. The consensus on Visible Alpha was for $48.04 billion. YouTube ads jumped 16% to $9.2 billion “driven by both brand advertising and direct response,” Porat said. Network advertising revenue declined 2% to $8.3 billion.
“Search missed by 30 (basis points) and YouTube was in-line where varying degrees of upside from both were expected,” RBC Capital Markets wrote in a client note. Google network revenue was the primary driver of the ad revenue miss in the quarter, according to Wedbush Securities.
Google Services revenue rose to $76.31 billion from $67.84 billion, the company said. Revenue in the Google cloud segment soared 26% to $9.19 billion. “We’re very pleased with the momentum of (Google cloud platform) with an increasing contribution from (artificial intelligence),” Porat told analysts. “The strong demand we are seeing for our vertically integrated AI portfolio is creating new opportunities for Google cloud across every product area.”
Total costs and expenses widened to $62.61 billion from $57.89 billion year-on-year. During the quarter, Alphabet recorded exit charges of $1.2 billion related to the workforce reductions it initiated in January last year.
“We remain committed to our framework to durably reengineer our cost base as we invest to support our growth priorities,” Porat said. Product prioritization and organization design efforts are resulting in slower hiring, but the company will “continue to invest in top technical and engineering talent,” she said.
Fellow technology giant Microsoft (MSFT) reported better-than-expected fiscal second-quarter results late Tuesday, with overall revenue boosted by a 24% increase in its cloud business.