Alphabet Net Income Falls 34 Percent in Fourth Quarter, Revenue Growth Slower as Ad Spending Eases

A sign is posted in front of a building on the Google campus in Mountain View, Calif., on Jan. 31, 2022. Justin Sullivan/Getty Images

Google-owner Alphabet posted lower net income for fourth quarter 2022, and a smaller revenue increase, as the tech behemoth sees a decline in online ad spending, coming at a time when employee unions are criticizing the firm for firing thousands of workers.

California-based Google made $76.05 billion in revenues for the fourth quarter, up 1 percent from $75.33 billion during fourth quarter 2021, according to a earnings release on Feb. 2. Operating income fell to $18.16 billion, a 17 percent decline from $21.89 billion. Net income fell by 34 percent to $13.62 billion from $20.64 billion. Though total acquisition costs fell during this period, income from operations declined even more.

Total acquisition costs for fourth quarter 2022 were $12.93 billion, down 3.7 percent from $13.43 billion in fourth quarter 2021. Total income from operations during this period fell from $21.89 billion to $18.16 billion, a decline of 17 percent.

“We’re on an important journey to reengineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” said Sundar Pichai, CEO of Alphabet and Google.

Earnings per share for the fourth quarter came in at $1.05, which is down 31 percent from $1.53 in fourth quarter 2021. According to FactSet Research, analysts were expecting earnings of $1.18 per share.

Declining Ad Revenues

Advertising revenue numbers from Google were seen as disappointing by some investors. Revenue from Google advertising, which includes search and YouTube, fell 3.6 percent, to $59.04 billion, during the fourth quarter from $61.24 billion in the year-ago period. Though total revenue rose, it was the smallest-ever growth, except for second quarter 2020.

YouTube ad revenues, which is a consistent revenue generator for Alphabet, fell to $7.96 billion in the quarter from $8.63 billion, a decline of 7.76 percent.

“Despite being seen as one of the most insulated companies in the advertising space relative to peers, Alphabet’s poor quarter is the latest sign that worsening fundamentals and a tough macroeconomic environment are prompting advertisers to cut back on spending,” said Jesse Cohen, senior analyst at Investing.com.

During a call with analysts, Pichai admitted that the more modest spending by advertisers was one of the factors that dragged down company results. Advertisers have scaled down ad spending due to concerns about consumer spending amid an environment of elevated inflation and high interest rates.

Falling ad revenue has been a theme of other major online platforms as well. Meta Platforms, the second-largest digital ad platform in the world after Google, posted its third consecutive quarter of year-over-year revenue fall in its fourth-quarter results.

Meta blamed lower ad spending from companies in the tech and financial services sectors as a reason for the decrease in revenue. Snap, which owns Snapchat, expects revenues to fall by up to 10 percent due to a challenging economy and competition.

“For a company the size of Google, and as influential as Google, to have such disappointing results, [that means the ad industry] won’t turn around in one quarter,” said Evelyn Mitchell, an analyst at Insider Intelligence, according to Reuters.

Layoffs

Earlier last month, the company announced a workforce reduction of roughly 12,000 roles. Alphabet expects to incur costs of $1.9–2.3 billion as employee severance and related charges, the majority of which is expected to be recognized in first-quarter 2023 results.

During the company’s earnings call, members from the Alphabet Workers Union, Google’s unionized workers, rallied outside of the company’s New York City office protesting against the layoffs. In a tweet Feb. 3, the union said that Google has “debunked its own rationale” for laying off 12,000 workers with its fourth-quarter earnings release.

“It is clear that the menial savings the company is pocketing from laying off workers is nothing in comparison to the billions spent on stock buybacks or the billions made in profits last quarter,” Alberta Devor, a member of the union, said in a statement.

“We are outraged that our colleagues unceremoniously lost their livelihoods while Google continues to remain extremely profitable. That is why we are standing here together to demand Google prioritize transparency and its workers over shareholder profits.”