Google’s parent company reported its fourth consecutive drop in quarterly profit, weeks after culling 6 percent of its work force to cut costs.
By Nico Grant
Nico Grant reports on Google and is based in San Francisco.
Alphabet, Google’s parent company, has settled into a period of stalled growth as economic uncertainty reverberates across Silicon Valley. Gone are the pandemic boom times, when the internet giant’s profit and employee head count soared.
On Thursday, the company posted its fourth consecutive decline in profit as it grapples with a slowdown in digital advertising. Net income plummeted 34 percent to $13.6 billion, falling short of Wall Street expectations of $15.3 billion, according to data compiled by FactSet.
The internet giant also generated $76 billion in sales in the last three months of 2022, down 1 percent from a year earlier and in line with analysts’ estimates.
Google experienced years of soaring growth as consumers spent more time and money online during the coronavirus pandemic, lifting the advertising market upon which the company depends. Those advantages began waning last year, when rising interest rates and inflation prompted advertisers to rein in their spending.
“We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” Sundar Pichai, the company’s chief executive, said in a statement.
In an earnings call, Mr. Pichai said the company was undertaking various efforts to tame expenses, including by improving the financial performance of its lineup of Pixel phones and other gadgets, trying to make its loss-making cloud division profitable and strengthening the business at its video platform YouTube.
Alphabet shares fell 3 percent in after-hours trading.
One of its most notable recent moves to cut costs has centered on its work force. After hiring 30,000 employees in the first nine months of last year, Alphabet said last month that it would cut 12,000 workers, or 6 percent of employees. The company said on Thursday that it expects to incur $1.9 billion to $2.3 billion in employee severance and related charges, most of which would be recognized in the current quarter.
Alphabet also expects to spend $500 million shedding unnecessary real estate this quarter, as part of the effort to pare back expenses. It said it would also better manage spending on suppliers and deploy more artificial intelligence to automate some tasks and boost productivity.
Alphabet said it now has 190,234 employees, up from 186,779 in October. Workers in the United States who were affected by the company’s layoffs will officially remain employees until March, and the departure process could take longer for workers based in other countries.
The advertising pullback has coincided with other unwelcome developments for Alphabet. ChatGPT, an artificial intelligence chatbot built by OpenAI, debuted to great fanfare in November, prompting speculation that it could disrupt Google’s search engine dominance. Mr. Pichai declared a “code red” in response, reassigning teams to give priority to A.I. projects.
Mr. Pichai said that in the coming months Google would let users access a version of its search engine that incorporates chatbot features, which was reported earlier by The New York Times. He said the company would also incorporate more A.I. into applications such as Gmail and Docs, and its cloud unit would sell the underlying technology to other businesses.
Revenue from Google’s search engine, its largest business, dropped more than 1 percent to $42.6 billion in the fourth quarter, lower than analysts’ estimates of $43.3 billion.
Google has recently had to defend itself from the government. The Justice Department last month sued the company for the second time in three years, claiming most recently that Google had abused its position as an advertising technology monopoly. The Justice Department wants to force Google to divest parts of its suite of ad technology products, which include software for buying and selling ads, a marketplace to complete the transactions and a service for showcasing the ads across the internet.
That division generated $8.5 billion in the most recent quarter, down 9 percent from a year earlier. Analysts had expected sales of $8.8 billion.
Advertising sales at YouTube dipped nearly 8 percent to $7.96 billion, below the $8.2 billion expected by analysts. In October, the company reported falling sales at YouTube, signaling that it has been more vulnerable to digital advertising swings than Google.
Sales at Google Cloud, the division that offers software and technology services to other businesses, increased 32 percent to $7.3 billion. Analysts had estimated $7.4 billion. Google has invested billions over the years to help the unit expand, but it has continued to lose money. It recorded a loss of $480 million in the fourth quarter.
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Michele Motsinger