Alphabet disappointed Wall Street on Tuesday as holiday season advertising sales came in below expectations, overshadowing the company’s efforts in artificial intelligence and the cloud.
Shares fell more than four per cent in after-hours trade.
Alphabet came short of expectations for ad revenue, recording $65.5 billion in the fourth quarter while analysts on average had estimated $66.1 billion, according to LSEG data. It had posted $59.0 billion a year earlier.
Alphabet has faced tough competition for ad budgets from other online platforms such as Facebook, Instagram, TikTok and Amazon.com, alongside mixed economic signals in the U.S.
“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks,” commented Thomas Monteiro, senior analyst at Investing.com.
Google, inventor of foundational technology for today’s AI boom, also faces tough competition from the two players that have captured the business world’s attention, ChatGPT’s creator OpenAI and its financial backer Microsoft MSFT.O.
While Google’s cloud revenue growth slightly topped Wall Street targets, boosted by interest in AI, Microsoft’s Azure grew faster.
Google is bringing a powerful suite of models called Gemini to its ChatGPT rival Bard. It struck a deal to invest up to $2 billion in high-profile AI startup Anthropic as it courts customers from larger cloud rivals Microsoft and Amazon AMZN.O, and it is putting Gemini into advertisers’ hands so their dollars keep flowing to Google’s search business.
Still, AI’s advertising boost may remain far off, in a period of concern that geopolitical and economic uncertainty could discourage ad buyers. The U.S. has started probing AI investments including Alphabet’s, Google is gearing up to appeal a major antitrust case it lost, and the company like others in technology has been cutting jobs.
Overall revenue for the quarter ended Dec. 31 stood at $86.3 billion, compared with estimates of $85.3 billion, according to LSEG data.
Investors have grown more interested in the fortunes of Google Cloud. Last year the division earned its first-ever quarterly profit, but revenue growth slowed as customers streamlined cloud spending.
Microsoft has been a fierce competitor, adding AI to its cloud and productivity suite long embraced by enterprises, while Google has marketed rival tools. OpenAI’s Nov. 2022 launch of ChatGPT ignited a frenzy over generative AI, which can conjure new text and images on command.
Alphabet said Google Cloud revenue in the latest quarter was $9.2 billion, while analysts were expecting $8.9 billion. That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7 per cent but was slower than 32 per cent growth in the year-ago quarter. Microsoft on Tuesday reported that sales of its cloud product, Azure, grew at 30 per cent.
Alphabet CEO Sundar Pichai told analysts that cloud growth was driven in part by generative artificial intelligence.
—Reporting by Akash Sriram in Bengaluru and Jeffrey Dastin and Peter Henderson in San Francisco; Editing by Arun Koyyur and David Gregorio