Google struggled to grow over the holidays despite ‘great momentum’ on YouTube and Pixels

Alphabet CEO Sundar Pichai opened his firm’s newest earnings announcement by boasting about “great momentum in Cloud, YouTube subscriptions, and our Pixel devices.” But learn a bit additional, and the numbers present an organization is struggling to grow: its income for the vacation quarter — the massive one for a lot of firms, particularly these in the advert enterprise — was primarily flat in contrast to 2021. It additionally had worse margins, which means it was incomes much less on the cash it did spend.

Alphabet, Google’s mum or dad firm, had an unbelievable run throughout the pandemic, posting unbelievable revenues in 2021 and attaining document income a number of quarters in a row. But all through 2022, its momentum has cooled; its income has grown at a slower tempo, and its income have shrunk.

The firm experiences that it introduced in nearly $283 billion in income final yr, a ten p.c improve from 2021. However, 2021’s $257.6 billion in income represented 41 p.c progress — which means the firm’s charge of income progress has greater than halved. Meanwhile, its income shrank yr over yr; in 2021, Alphabet earned $76 billion in income. For 2022, that quantity shrank to just below $60 billion, a lower of round 21 p.c.

It’s a worse story taking a look at simply This fall 2022. Google introduced in $76 billion in income, a mere 1 p.c achieve over This fall 2021. It additionally earned fewer income — $13.6 billion vs. $20.6 billion — and made a 24 p.c margin versus 29 p.c.

Several of Google’s primary sources of income are down yr over yr: promoting is down by over $2 billion, with providers (a class that features Android, Chrome, {hardware}, Google Maps, Google Play, Search, and YouTube) taking a $1.5 billion hit in contrast to This fall 2021. It additionally spent over $1.5 billion extra on analysis and growth.

As for the Cloud, YouTube Subscriptions, and Pixels, Google doesn’t present direct information on how a lot it makes off of {hardware} alone. It did, nevertheless, solely incur $480 million in losses on Cloud in This fall 2022 vs. $890 million in the similar quarter the earlier yr. It made round $670 million much less in YouTube promoting, however it did considerably hike the value of a household plan to YouTube Premium in October. During an earnings name, Pichai stated that YouTube Music and Premium had over 80 million subscribers (although that quantity does seemingly embody trials). The firm beforehand introduced that determine in November.

In October, throughout the firm’s earnings name for Q3, CFO Ruth Porat stated that the firm’s “actions to slow the pace of hiring will become more apparent in 2023.” That’s positively the case — earlier this month, Pichai introduced that the firm can be shedding 12,000 folks after months of warning about the firm having to sharpen its focus and going through tough financial situations. The firm says it’ll be spending wherever from $1.9 billion to $2.3 billion in severance prices.

Despite the layoffs, Alphabet experiences that its workforce remains to be bigger than it was final quarter — the firm experiences it has 190,234 staff, whereas it stated it had 186,779 in October.

The firm is making cuts in different areas, too. According to its earnings report, it expects to spend round $500 million in “exit costs relating to office space reductions” in the first quarter of 2023.

The influence from a lot of the latest Alphabet information will possible lengthen far exterior the quarter previous. Over the subsequent yr or extra, the firm may have to deal with a large DOJ lawsuit that alleges it has monopoly energy over internet advertising, an analogous go well with over its search dominance, and the rise of AI chatbots, which has reportedly involved the firm. It additionally simply launched its income sharing program for YouTube Shorts in a bid to additional compete with TikTok. (Some issues, nevertheless, in all probability gained’t be ongoing issues — Stadia was shut down in January, and it appears unlikely it’ll proceed to influence Alphabet’s financials.)

Update February 2nd, 5:47PM ET: added YouTube Music and Premium subscriber numbers.