Alphabet reports 34% drop in net income amid dwindling ad demands

Google parent Alphabet reported its fourth-quarter results yesterday, posting a fourth consecutive decline in profits. The company's net income was down by 34% at $13.6 billion, falling behind the Wall Street expectations of $15.3 billion, owing to the lower advertising demands. Google search engine, which is its largest business, also dropped 1% in revenue to $42.6 billion, against the analyst estimations of $43.3 billion.

Google Cloud posted a loss of $480 million but it generated $7.3 billion in sales which was in line with the analysts’ estimates. Google Cloud is yet to turn to profit and is behind Microsoft Azure and Amazon’s AWS in the market. Google continues to pump billions of dollars into this unit for its expansion.

Further, video company YouTube, which Alphabet acquired in 2006, reported ad sales of $7.96 billion, falling short of the analysts’ estimate of $8.3 billion. YouTube has seen an 8% decline in its quarterly ad revenue since the end of 2021 when it reported earnings of $8.63 billion. Notably, the US Justice Department sued Google in January for abusing its advertising technology monopoly. As part of this, the Justice Department asked Google to divest parts of its advertising products.

During the presentation, Sundar Pichai, the chief executive officer of Alphabet, emphasised a great focus on artificial intelligence. He said that the company plans to change the way it reports its AI activities, starting with including its AI research firm DeepMind to be included in Alphabet’s corporate costs. So far, it was just reported as part of ‘other bets’. Pichai further added that Google will make language models like Language Model for Dialogue Applications (LaMDA) for better search results. The company said that it will manage spending by deploying more AI to automate tasks and boost productivity.

In January, Alphabet announced that it would be cutting down 12,000 jobs or 6% of its total workforce. During the quarterly results, the company said that it expects to spend $1.9 - 2.3 billion in severance packages and related expenses. The employees who were affected by company layoffs will remain with the organisation till March; it may be longer for other countries. Considering these factors, Alphabet reported a headcount of 190,234, up from over 186,000 employees in October 2022.