- GOOG shares fell 4.5% following a weaker Q1
- Slowing ad revenue from YouTube weighed on earnings growth, derived partly from the Russian exit
- The company also are spending more on trending, with traffic acquisition costs up 23%
- key point
Google parent Alphabet (NASDAQ: GOOG) fell as much as 5% in after-hours trading on Tuesday as the company reported Q1 earnings that illustrated shrinking advertising revenue in its famed video platform – Youtube. It’s an important week for big tech, and bulls would have been hoping for some relinquishment to this year’s heavy selling spurred by solid financials. Whilst Microsoft delivered on top and bottom lines, Alphabet fell short; citing a larger than expected hit to Youtube advertising revenue thanks to commercial suspension in Russia.
Alphabet posted first quarter EPS of $24.62 per share, falling slightly short of the $25.91 consensus expectation. Revenue also came in short of the $68.11B expected, pegged at $68.01. Google Cloud revenue unsurprisingly stood tall, hitting $5.82B against the Street consensus of $5.76B. It was Youtube advertising revenue that threw the stock into the red last night, coming in at $6.87B against the $7.51 estimate.
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Alphabet finance chief Ruth Porat links the gradual arrest of Youtube revenue as a partial result of the ongoing conflict between Russia and Ukraine, with the company suspending its commercial activities and noting a general reduction in spending from brand advertisers across Europe.
Current tech earnings will be analyzed with meticulous details as investors reconsider high-growth valuations amid soaring inflation, tighter financial policy and continued geopolitical headwinds. Microsoft is currently trading up around 3.5% premarket after its positive earnings beat, but it will be interesting to see if buyers stick around, or whether big tech will continue to weather a brutal sell-off; the Nasdaq has lost a fifth of its value this year.
Google is also spending more. Its Q1 traffic acquisition costs jumped 23% to $11.99B against the $11.7B expected by analysts. Alphabet is currently attempting to navigate monetisation options and the cloud-driving digital transformation, all whilst operating in an atmosphere that isn’t currently favoring big tech. The Russian infliction should be a temporary dip, and despite the success of Youtube Shorts, the company needs to assess further monetisation strategies.