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Google’s immunity does not quite last

First-quarter ad revenue for Google parent company Alphabet was shy of Wall Street expectations.


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PARESH DAVE / REUTERS

Google is robust, but it’s not bulletproof.

First quarter result from parent company Alphabet Inc.

GOOG -3.04%

Tuesday afternoon showed that the world’s largest online advertising company is hardly immune to the pressure that others in the sector are feeling. Total advertising revenue grew 22% year-over-year to $ 54.7 billion, but still fell back to the $ 55 billion that Wall Street had expected. The main culprit was YouTube, where advertising revenue of nearly $ 6.9 billion fell about 8% below the $ 7.4 billion analysts had expected. YouTube’s advertising revenue also experienced a significant slowdown, growing 14% year-over-year in the most recent quarter, compared with 25% growth in the December period and 49% growth in the first quarter of last year.

The results reduced Alphabet’s share price by 3% after opening hours, even after a fall of almost 4% during market sales in the ordinary session. The stock has fallen 18% so far this year through Tuesday’s session, but it has outperformed others in the online advertising space due to a belief that the company’s advertising business, primarily based on search, was least exposed to the many-headed rising inflation challenges. supply chain problems and the war in Ukraine. Shares of Facebook parent meta platforms – Google’s biggest competitor in ads – have fallen by 46% so far this year.

Google’s actual results do not improve trust in the group. The company noted in its conference call on Tuesday that within the YouTube company’s brand advertising was strong compared to direct-response ads. This is somewhat in contrast to the results last week from Snapchat parent company Snap Inc., which reported that its brand advertising was particularly hit by “headwinds in the supply chain and labor supply.” But compared to Google’s other ad segments, YouTube is also seen as more vulnerable to the growing popularity of rival video platform TikTok, which has affected Facebook’s prospects even more significantly. Meta’s share price fell another 3% after hours after Alphabet’s results.

Google is still in excellent shape financially. The company added $ 70 billion to its buyback plan – after repurchasing more than $ 50 billion in shares over the past 12 months – despite a “meaningful increase” in investment spending planned for this year. Operating revenue of $ 20.1 billion for the quarter even came 2% ahead of Wall Street’s expectations despite a lack of advertising revenue. But with the forces weighing on the global online advertising business, which is unlikely to decline in the second quarter, the biggest player in the industry will not remain unharmed.

Write to Dan Gallagher at dan.gallagher@wsj.com

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