Alphabet (GOOGL) shares slumped firmly lower Wednesday after the Google parent company posted weaker-than-expected third quarter earnings thanks to slowing ad sales growth that echoed the warning last week from messaging ap maker Snap (SNAP).
Google said revenues from YouTube, its signature non-search platform, fell 2% to around $7.07 billion over the three months ending in September, a move CFO Ruth Porat said reflects a "pullback in spend by some advertisers as we first noted last quarter". Ad sales were up just 2.5% to $54.48 billion while overall revenues rose 6.1% -- the slowest since 2013 -- to $69.1 billion.
Last week, messaging app-maker Snap warned that its holiday quarter would see little to no revenue growth amid a pullback in global ad spending, a forecast that rippled through the social media space, hiving more than $40 billion in market value from rivals such as Twitter (TWTR), Pinterest (PINS) and Meta Platforms (META) over a single trading session.
Google's bottom line came in at $1.06 per share over the three months ending in September, compared to last year's split-adjusted figure of $1.39 per share, a tally that missed Street forecasts by around $1.25 per share.
Looking into the final months of the year, Porat said a tough comparable period in 2021 will weigh on ad revenue growth rates, with added headwinds from the strength of the U.S. dollar.
"In the third quarter, we did see a pullback in spend by some advertisers in certain areas and search ads," chief business officer Philipp Schindler told investors on a conference call late Tuesday. "For example, in financial services, we saw a pullback in the insurance, loan, mortgage and crypto subcategories."
"There's no question we're operating in an uncertain environment, and that businesses big and small continue to get tested in new and different ways, depending on where they are in the world," he added.
Alphabet shares were marked 7.5% lower in early Wednesday trading to change hands at $96.66 each., a move that would extend the stock's year-to-date decline to around 33.5%.
Porat said the pullback in spending, alongside broader economic pressures, would mean its prior plans to slow the pace of hiring "will become more apparent in 2023."
Google hired 12,765 people to its global headcount last quarter, Porat said, with 2,600 added from its acquisition of cloud group Mandiant.
"While this is not thesis changing for Alphabet itself, it is a warning sign to us that digital advertising this quarter may be weaker than we initially thought as search on a 3-year revenue comparison," said JMP Securities analyst Andrew Boone, who carries a 'market perform' rating and a $145 price target on the stock.
"While we acknowledge the tough macro environment, our belief that Alphabet remains well positioned across most major digital secular growth trends is unchanged as AI is improving results for advertisers, YouTube is taking share of linear TV budgets, and GCP should win more IT budgets from ongoing cloud growth," he added. "With expense discipline set to continue into next year and share repurchases at an all-time high, we would take advantage of any pullback in shares."
