Alphabet stock fell after the company missed expectations on Google ad revenue

Shares of Google parent Alphabet (GOOG, GOOGL) fell after the company reported fourth-quarter earnings after the bell on Tuesday, which fell short of analysts' expectations for advertising revenue, the heart of the tech giant's business.

The stock fell more than 5% in early trading Wednesday, part of a broader decline for the tech-heavy Nasdaq (^IXIC).

Revenue, excluding traffic acquisition costs for the third quarter, was $72 billion versus expectations of approximately $71 billion. This is higher than the $63.12 billion that the company generated during the same period of the previous year. But investors seem to be focusing on the advertising error.

The company has reported continued growth in its cloud business, which has increased in importance to investors due to its usefulness in developing artificial intelligence. Google Cloud's revenue exceeded expectations, topping $9 billion, representing a 26% jump from last year. The company is seeking to claim additional market share in the cloud computing market, where it currently holds third place behind competitors Amazon (AMZN) and Microsoft (MSFT).

Here are some of Alphabet's most important metrics compared to what Wall Street was expecting in the company's fiscal fourth quarter, according to data from Bloomberg:

  • Revenue, excluding traffic acquisition costs: $72.32 billion vs. $70.97 billion expected ($63.12 billion in Q4 2022)

  • Adjusted EPS: $1.64 vs. $1.59 expected ($1.05 in Q4 2022)

  • Cloud revenue: $9.19 billion vs. $8.95 billion expected ($7.32 billion in Q4 2022)

  • Advertising revenue: $65.5 billion vs. $65.8 billion expected ($59.04 billion in Q4 2022)

During a call with analysts, CEO Sundar Pichai and CFO Ruth Porat both pointed out the importance of business simplification to achieve cost savings and efficiency.

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“Across different teams, we have closed some non-priority projects that will help us invest and perform well in our growth areas,” Pichai said.

Porat said the company is focusing on removing organizational layers to enhance efficiency, which has slowed the pace of hiring. But she added that the company will continue to invest in the best talent.

The earnings report comes just weeks after Google laid off hundreds of workers across multiple departments as the company aims to cut expenses and focus on growth areas, including artificial intelligence. The tech giant joins many of its peers and others across corporate America who have relied on layoffs to boost efficiency in the wake of major coronavirus-era expansions.

Google executives also responded to concerns that AI advances could disrupt the company's search products as AI-generated chatbots change the way people interact with the web.

Pichai said the AI ​​tools expand Google's arsenal, which provides breadth and depth of information to users who crave a variety of online sources.

Google is widely seen as playing catch-up to Microsoft, which was among the first tech companies to capture the cultural excitement around its AI-powered consumer chatbots. Microsoft has invested in OpenAI, the company behind the popular chatbot ChatGPT.

Google has embarked on a range of efforts to enhance its search tools with artificial intelligence (the Bard experiment and generative search) and to introduce new, advanced large language models, such as Gemini.

Hamza Shaaban is a reporter for Yahoo Finance covering markets and economics. Follow Hamza on Twitter @hshaban.

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