Alphabet Reports Earnings Miss Although Prospects Remain Solid Amid Gathering Global Economic Headwinds

The News: Alphabet Inc. (NASDAQ: GOOG, GOOGL) announced third quarter 2022 results for the quarter ending September 30, 2022. Read the Alphabet Press Release here.

Alphabet Reports Earnings Miss Although Prospects Remain Solid Amid Gathering Global Economic Headwinds

Analyst Take:  Google parent company Alphabet reported its Q3 2022 results. Alphabet & Google CEO Sundar Pichai provided perspective by stressing the company is sharpening focus on a clear set of product and business priorities. The top product initiatives include making substantial improvements to both its Search and Cloud offerings, powered by AI, as well as new ways to monetize YouTube Shorts.

Alphabet and Google’s Q3 2022 revenues were $69.1 billion, up six percent versus last year or up eleven percent on a constant currency basis. Ruth Porat, CFO of Alphabet and Google, indicated the financial results for Q3 2022 reflected healthy fundamental growth in Search and momentum in Cloud, while affected by foreign exchange.

From our view, Google had a mixed challenging Q3 2022 with Google Cloud providing a longer-term bright spot. Of concern, Google missed by two percent (-2%) on the top line, while missing significantly on the bottom line by fifteen percent (-15%). Google showed a 27% drop in profits compared to last year and weaker than expected earnings and revenue.

Per usual ad revenue and click-through rates factored heavily into the latest earnings with Google indicating that reduced spending from the insurance, loan, mortgage, and crypto subcategories playing a major role in Q3 outcomes. Parent company Alphabet’s “Other Bets” breakout, consisting of long-term R&D initiatives such as Waymo self-driving cars and Wing drone delivery, lost $1.6 billion, more than the $1.29 billion loss a year ago. Google Cloud lost $699 million in Q3 2022, up from $644 million in Q3 2021.

As a result, CEO Sundar Pichai has dialed back hiring since August, overhauled the workforce evaluation process with the objective of making the company more mission-focused and 20 percent more efficient organization-wide moving forward.

Google Q3 2022 Takeaway: Silver Linings in the Google Cloud

On the other hand, Google Services total revenue in Q3 2022 came in at $61.4 billion, up by two percent from $59.9 billion in Q3 2021 with Q3 2022 operating income of $24 billion, up from $19.8 billion in Q2 2021. Specifically, Google Cloud generated $6.87 billion revenue in Q3 2022, improving 38 percent over Q3 2021 revenue of $5 billion. Also, Q3 2022 headcount was 186,779, a 24 percent jump over Q3 2021 headcount of 150,028.

We believe Google’s diverse portfolio and status as top of the heap across the online ad space will provide the foundation for the company to become more mission focused. When it comes to online advertising Google is most likely the last player to be moved off the advertiser’s list. Google advertising revenues remain generally robust and can claim best in class across the competitive landscape, especially in countering TikTok’s growing presence. In contrast, players such as Snap and Meta, have experienced and will likely experience more challenges in this area.

Also, we see Google’s ongoing investments in Google Cloud yielding long-term benefits despite the Q3 2022 operating loss and key rival Microsoft Azure showing more growth. In the post-pandemic era, we find that enterprises will expand their investment in cloud platforms, including public cloud and multi-cloud platforms, to advance their digital transformation missions.

This is due to key considerations such as broader implementation of automation and AI/ML capabilities and using cloud to better align their IT and network assets to improve business outcomes. As such, we expect Google to weather the uncertainties of the Q3 2022 earnings results and to adroitly handle the global economic headwinds that are expected over the next year, especially as CEO Sundar Pichai accelerates his belt-tightening and reform measures.

Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.

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Image Credit: Google

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.


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