Alphabet (GOOGL) shares slumped lower Wednesday after the search and ad sales giant posted softer-than-expected first quarter revenues amid a global pullback in ad sales linked in part to Russia's war on Ukraine and increasing competition from China-based TikTok.
Google's bottom line came in at $24.62 per share over the three months ending in March, a tally that missed Street forecasts by around $1.14 and was down 6.7% from last year.
Group revenues also disappointed, even after rising 23% to $68.01 billion, as ad sales were only in-line with the Street at $54.66 billion. YouTube ad sales, however, were well shy of forecasts at $6.9 billion as Google suspended activities in Russia and European clients tightened marketing budgets. TikTok's increasing capture of young audiences for short-form videos was also a factor.
Last week, Snap Inc. (SNAP), which makes the Snapchat messaging app, cautioned that ad sales could be hit by the surge in inflation, as well as the supply chain challenges facing companies around the world, even as it forecast solid user growth.
Google's cloud division, the third largest in the world behind Amazon (AMZN) and Microsoft (MSFT), saw revenues rise 44% to $5.82 billion while so-called 'core search' revenues were up 2% to $39.62 billion.
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"Revenue growth rates that we delivered in 2021 in Search and across our advertising businesses more generally did benefit from lapping the Covid-related weakness in 2020," CFO Ruth Porat told investors on a conference call late Tuesday. "So one key point is that we're not going to have that tailwind for the rest of this year. And as I noted, one of the key areas to focus is Q2 of 2020. That was where we had the largest impact from COVID. So that means in the second quarter of 2022, we're going to face a tough comp."
"I would say, in addition, the second quarter results are going to continue to reflect that we suspended the vast majority of our commercial activities in Russia," she added.
The addition of a $70 million share buyback to the group's capital return plans halted some of last night's post-market slump, but Google shares were still marked 3.1% lower in early Wednesday trading to change hands at $2,298.70 each.
"While we were cautious on YouTube into earnings, we expected headwinds would not manifest meaningfully until 2Q. Instead, the combination of a tough comp from direct response, Russia impacting brand spend, Apple platform changes, and FX drove an 8%/7% revenue shortfall versus Street estimates," said KeyBanc Capital Markets analyst Justin Patterson, who carries and 'overweight' rating with a $3,075.oo price target on the stock.
"Given the size of the miss, we expect investors will weigh whether TikTok competition and Shorts engagement are impacting growth," he added.
