The parent company of Google Alphabet (GOOG, GOOGL) reported sales for the first quarter, which were roughly in line with forecasts, as the technology giant showed resilience in its key ads in search and cloud businesses. However, profits were lower than expected as costs rose and growth in the tech giant’s YouTube business slowed sharply from last year.
Shares of Alphabet fell more than 4.5% in late trading after the results.
Here are the main indicators from the Alphabet report on Tuesday afternoon, compared to the consensus estimates compiled by Bloomberg:
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Revenue, excluding traffic acquisition costs: $ 56.02 billion versus expected $ 56.07 billion
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Earnings per share: $ 24.62 versus $ 25.71 expected
Focusing on the report, investors focused on the strength of Alphabet’s core advertising business in Google search. This unit has been strengthened over the last year as mobility has increased again and businesses have increased their marketing costs. However, this pickup last year also created harder comparisons for Alphabet to surpass this year in its best results.
In the first quarter, Google’s advertising revenue rose about 22 percent to $ 54.66 billion, exceeding consensus expectations by $ 54.12 billion. However, YouTube advertising revenue grew by only 14% to $ 6.87 billion. This unit was a faster growing segment of the company in recent quarters and in the same period last year increased revenue by nearly 49%.
Especially for YouTube, increased competition from social media companies and the many new streaming platforms have further created risks for future growth. In a note released ahead of Tuesday’s earnings results, a Cowen study found that TikTok, owned by ByteDance, is gaining a share of YouTube among 18- to 24-year-olds.
“YouTube was the leader on all platforms in 1Q22, when respondents were asked which platform they used most often for mobile video, but YouTube dropped to 35% of respondents from 45% in 1Q21, while TikTok was №2 with 22%.” John Blackledge, writes in a note analyst from Cowen.
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The Google website, shown on phone and computer, is shown in this illustrative photo taken in Krakow, Poland on April 6, 2022. (Photo by Jakub Porzycki / NurPhoto via Getty Images)
However, Alphabet is expanding its efforts in the cloud to compensate for the slowdown in other places. Google Cloud, although still smaller than previous companies such as Amazon Web Services and Microsoft Azure, is growing rapidly but still unprofitable. The division grew sales by 43% in the first quarter to reach $ 5.8 billion, which was roughly in line with expectations. However, operating losses were higher than expected – $ 931 million, while Wall Street was looking for a loss of $ 893.2 million.
High technology and other once-fast-moving stocks have come under pressure so far this year amid prospects for higher interest rates from the Federal Reserve, which would raise borrowing costs and weigh on those companies’ valuations. Shares of Alphabet fell 18% from the beginning of the year to close on Tuesday, while the S&P 500 fell 12% over the same period.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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