Alphabet growth slows, despite cloud performance

Google parent Alphabet has reported weaker-than-expected revenue for Q1'22, blaming the result on supply chain issues, inflation concerns, and the conflict in Ukraine.

The business logged $68 billion in first-quarter sales, up 23 per cent year-on-year but below the average financial analyst forecast of $68.1 billion (polled by Refinitiv). Quarterly profit was $16.4 billion, versus $17.9 billion a year ago.

The firm's overall costs also rose 23 per cent YoY.

The value of Alphabet's overall ad sales rose to $54.7 billion, from $44.7 billion the previous year. Search revenue was $39.6 billion, up from $31.9 billion a year ago.

The company's YouTube segment reported a significant shortfall, owing in part to increased competition from TikTok and advertisers responding to high inflation rates.

YouTube benefitted greatly from the pandemic in 2020 and 2021 when people were largely at home and using their gadgets to watch videos. Now that lockdowns are largely a thing of the past, the platform has seen a fall in viewership.

YouTube's ad sales of $6.9 billion fell short of Wall Street's forecast of $7.5 billion, according to Factset.

Philipp Schindler, Google's chief business officer, said YouTube's direct response ads grew more moderately throughout the quarter.

Alphabet's 'Other' revenue segment, which includes hardware, app, and subscription purchases, generated $6.8 billion in sales, below analysts' expectations of $7.3 billion.

Google's cloud segment was a standout in the quarter, generating $5.8 billion in revenue (up 44 per cent YoY). This figure beat estimates as more large enterprises migrated their workloads away from their own data centres. Google's cloud revenue kept the company in third spot, after Amazon and Microsoft, in terms of global cloud sales.

"Q1 saw strong growth in Search and Cloud, in particular, which are both helping people and businesses as the digital transformation continues," Alphabet CEO Sundar Pichai said in a statement.

Despite growth, Google's cloud segment continues to lose money, with an operating loss of $931 million, compared to $974 million a year ago.

Google paused many of its Russian operations in Q1, due to the invasion of Ukraine, which also affected revenue.

Google announced a share buyback programme this week worth $70 billion, up from $50 billion last year. The company's stock has dropped 18 per cent so far this year, while the broader S&P 500 index SPX has fallen 12 per cent.

In February, Alphabet reported a record end to the 2021 financial year, buoyed by growth from the advertising and cloud businesses.

The firm declared a net income of $20.6 billion on $75.3 billion revenue at the end of fiscal Q4, up 35.5 per cent and 32 per cent YoY, respectively.

Full-year 2021 net income was $76 billion (up 88.6 per cent) on $257.6 billion (up 41 per cent) of revenues.