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Google’s parent company Alphabet on Thursday posted lower profit and a small revenue increase for last year’s fourth quarter, as a decline in online ad spending and competition from rivals weigh on the search giant.
While overall revenue grew, advertising revenue fell by nearly 4% and revenue at YouTube declined 8% year-over-year. That appeared to spook investors, who sent the company’s stock lower in after-hours trading.
The company based in Mountain View, California, said it earned $13.62 billion, or $1.05 per share, in the October-December quarter. That’s down 34% from $20.64 billion, or $1.53 per share, in the same period a year earlier.
Revenue inched 1% higher to $76.05 billion from $75.33 billion.
Analysts expected Alphabet to post earnings of $1.18 per share on revenue of $76.2 billion for the period, according to FactSet Research.
Alphabets, like Facebook parent Meta, Amazon, and other tech companies, is navigating a rough economic patch that’s especially hurting the online advertising market.
Last month, Alphabet announced it was cutting 12,000 jobs or about 6% of its workforce. It was the company’s biggest-yet round of layoffs and adds to tens of thousands of other job losses recently announced by Microsoft, Amazon, Meta, and other tech companies that are tightening their belts in the face of a darkening outlook for the industry.
In response to the layoffs, Google’s unionized workers, members of the Alphabet Workers Union-CWA rallied outside of the company’s New York City office during the company’s earnings call.
“Alphabet is one of the most profitable companies in the world, and well positioned to weather any economic storm. Yet instead, our executives decided to lay off 12,000 of our coworkers, including many on medical or parental leave, as well as many with over a decade of loyal service,” the union said in a statement.
Alphabet is contending with a “challenging” economic climate and is working to re-engineer its cost structure to build “financially sustainable, vibrant growing businesses” across the company, CEO Sundar Pichai said.
“Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflection point, and I’m excited by the AI-driven leaps we’re about to unveil in search and beyond,” Pichai said in a statement.
Google is facing some competition in artificial intelligence from Microsoft, which last month announced it is making a “multiyear, multibillion-dollar investment” in the artificial intelligence startup OpenAI, the maker of the wildly popular ChatGPT and other tools that can write readable text and generate new images.
The technology could help Microsoft’s own search engine, Bing, compete with Google in answering search queries with more complete answers instead of just links.
Pichai also touted “great momentum” in Cloud, YouTube subscriptions, and Pixel devices, signaling to investors that Alphabet has plenty revenue sources outside of advertising to grow its business.
Nonetheless, advertising still makes up the bulk of Alphabet’s revenue.
Beyond the economic squeeze, Google is also facing regulatory pressure. Last month, the Justice Department and eight states filed an antitrust suit against Google, seeking to shatter its alleged monopoly on the entire ecosystem of online advertising as a hurtful burden to advertisers, consumers, and even the U.S. government.
The government alleged in the complaint that Google is looking to “neutralize or eliminate” rivals in the online ad marketplace through acquisitions and to force advertisers to use its products by making it difficult to use competitors’ offerings.
Shares in Alphabet Inc. fell about 4% in extended trading after the company’s earnings report came out.
After a long run of surging profits from pandemic-era shopping sprees, Amazon is feeling the hangover. The retail and tech giant is reporting its first unprofitable year since 2014.
Amazon lost $2.7 billion last year, the company said on Thursday. This was despite holiday-season sales growing 9%. Amazon's shares fell in after-hours trading.
By far, the biggest culprit for Amazon's losses over the year was the company's hefty investment in the electric automaker Rivian whose value plummeted last year and ate into Amazon's bottom line.
Amazon had taken a 20% stake in Rivian and has begun rolling out the carmaker's electric delivery vans. Rivian wanted to replicate Tesla's success and held one of the largest initial public offerings in U.S. history. But last year, the exuberance faded, the carmaker made pricing missteps and it fell short of growth targets. Its stock price dropped 82%.
For Amazon, the loss on its investment comes right when it contends with the need to recalibrate after a pandemic-era upsurge.
During the pandemic, the appetite for online shopping seemed to promise exponential growth, and many believed the habit changes could be permanent. Amazon couldn't hire and built warehouses fast enough; its profits doubled and kept growing. But then people returned to physical stores, switched from cocooning to travel and outings, and eventually got more hesitant to spend as inflation rose.
Amazon began reconsidering its warehouse expansion plans. Industry reports tracked cancellations, closures, and delays. Andy Jassy, in a rare Amazon CEO appearance on a quarterly call with investors, said his top priority was cutting costs in the company's operations.
"It's important to remember that over the last few years, we took a fulfillment-center footprint that we built over 25 years and doubled it in just a couple of years," he said. "We at the same time built out a transportation network, for the last mile, roughly the size of UPS. ... Just to get those functional, it took everything we had."
Last month, Amazon announced it expected to cut 18,000 jobs or about 5% of the corporate workforce. Jassy, in a blog post, referenced "the uncertain economy" and the company's pandemic-era hiring spree.
At its peak, in late 2021-early 2022, Amazon employed more than 1.6 million part-time and full-time workers globally. Thursday's financial report shows that the number is now down to 1.5 million.
In October, the company — the second-largest private employer in the U.S. — raised the average starting pay for U.S. warehouse and delivery workers to $19 an hour from $18 to stay competitive.
Now, Amazon is also seeing growth slow down also in its biggest money-maker, the cloud computing business — as companies scale back in the face of high inflation and interest rates.
When reporters asked about the slowdown at Amazon Web Services Thursday, Chief Financial Officer Brian Olsavsky said: "We realize everyone's trying to cut their budgets – we are in our main Amazon business... We do expect to see some slower growth rates for the next few quarters."
Still, Amazon continues to invest in new ventures. The company is working to close its $4 billion deal to buy One Medical, a chain of primary care clinics. And it launched a $5 subscription service for generic prescription medication for its paying Prime members, hoping to draw more people into the program.
Separately, the company faces a protracted fight against an upstart unionization push. Amazon last month lost its bid to overturn the first-ever union win at a Staten Island warehouse. Federal labor officials ordered the company to begin bargaining with the Amazon Labor Union. But the matter is likely to reach the courts.
In recent weeks, Amazon received a series of citations for safety violations from federal inspectors at the Occupational Safety and Health Administration. This is for six warehouses in Colorado, Florida, Idaho, Illinois, and New York.
OSHA officials found Amazon warehouse workers at high risk of lower back and other injuries from twisting, bending, and lifting that they perform as much as nine times per minute. The company was expected to appeal, and a spokesperson said the allegations didn't "reflect the reality of safety at our sites."
Apple on Thursday posted its first quarterly revenue drop in nearly four years after pandemic-driven restrictions on its China factories curtailed sales of the latest iPhone during the holiday season.
The company’s sales of $117 billion for the October-December period represented a 5% decline from the same time in the previous year, a deeper downturn than analysts had projected.
It marks Apple’s first year-over-year decrease in quarterly revenue since the January-March period in 2019 when sales also slipped 5% amid slowing iPhone demand and the fallout of a trade war with China that was being waged by then-President Donald Trump.
Apple’s profit also eroded during the past quarter, even though the Cupertino, California, company remained a pillar of prosperity. Earnings totaled $30 billion, or $1.88 per share, a 13 decrease from the same time in the previous year. Those results also missed a target of $1.94 per share set by analysts polled by FactSet Research.
Investors reacted to the letdown by initially driving down Apple’s stock by nearly 5% in Thursday’s extended trading. But management remarks made during a conference call with analysts raised hopes that Apple’s disappointing performance may have been a mere hiccup, paring the decrease in the company’s shares to less than 1%.
Apple’s rare stumble came against a backdrop of renewed investor optimism about tech’s outlook for this year, helping to spur a 17% increase in the sector’s bellwether Nasdaq composite index so far this year.
But now Wall Street seems likely to reassess things in light of Apple’s latest results and ongoing worries about a potential recession in the wake of rising interest rates aimed at tamping down inflation, said Investing.com analyst Jesse Cohen.
With Google also disclosing a year-over-year quarterly decline in its digital ad sales on Thursday alongside Apple’s disappointing performance, Cohen said it’s clear there are “several challenges the tech sector faces amid the current economic climate of slowing growth and elevated inflation.”
Despite the quarterly downturn in its fortunes. Apple hasn’t signaled any intention to resort to mass layoffs — a stark contrast to its peers in technology. Industry giants Alphabet, Microsoft, Amazon, and Meta Platforms have announced plans to jettison more than a combined 50,000 employees as they adjust to revenue slowdowns or downturns caused by people’s lessening dependence on the digital realm as the pandemic has eased.
“We manage for the long term,” Apple CEO Tim Cook told analysts during the conference call. “We invest in innovation and people.”
Cook had tried to brace investors for tougher sledding in late October when he warned of “increasingly difficult economic conditions” heading into the holiday season. Then, just a few days later, Apple cautioned that China’s attempts to clamp down on the spread of COVID were affecting its production lines and would prevent meeting all the demand for the premium iPhone 14 models during the holidays.
That contributed to an 8% decrease in iPhone sales from the previous year to $65.8 billion in the most recent quarter.
Cook indicated Apple’s supply headaches are now over, assuring analysts that “production is now back where we want it to be.”
In another positive sign, Apple also disclosed that it now has more than 2 billion iPhones, iPads, Macs, and other devices in active use for the first time. That is likely to help Apple sell more digital subscriptions and ads, helping to fuel long-term revenue growth.
Apple Inc. AAPL 3.71% reported disappointing quarterly results that ended its three-year streak of sales and profit records, capping an earnings season in which the world’s biggest technology companies mostly struggled to shake off a post-pandemic hangover.
The iPhone maker announced its first quarterly revenue decline in nearly four years as manufacturing disruptions in China curbed its ability to deliver premium iPhones. Its results came the same day that Amazon.com Inc. reported growth that, while beating expectations, nonetheless concerned investors, because of slowdowns in its online shopping and cloud computing businesses, and Google parent Alphabet Inc. GOOG 7.27% said it was hit by a broad slowdown in the digital ad market.
The results reflect how tech giants continue to struggle with wobbly consumer demand and weakness in business spending on areas like digital advertising—prompting company leaders to emphasize cost-cutting and other measures to improve efficiency and stabilize their businesses.
The reports came a day after Facebook parent Meta Platforms Inc. issued results and guidance that—along with an expanded share-buyback plan—elated investors in a stock that was hammered last year. Meta’s stock soared 23% Thursday, its biggest one-day percentage gain since 2013, helping lift other tech shares.
Shares in Apple, Amazon, and Alphabet gave back some or all of those increases in after-hours trading following their results. All three companies cited economic pressures as a challenge. Apple Chief Executive Tim Cook said in an interview that “the wind was in our face for the fourth quarter.”
For the holiday quarter that ended in December, Apple’s revenue fell 5% to $117.2 billion, well below analyst estimates of $121.4 billion, according to FactSet. Net income dropped 13% to $30 billion, also lagging behind expectations.
“Instead of playing with tailwinds, they are playing with headwinds now,” said Trip Miller, managing partner at Gullane Capital Partners LLC, which is an investor in Apple, Amazon, and Alphabet.
Investors welcomed Meta’s restructuring plans. Meta, Amazon, Google, and Microsoft have all begun to eliminate jobs in response to the global economic slowdown.
So far, Apple has managed to avoid the layoffs rippling through the corporate ranks of its technology peers. The company hired at a slower pace during the pandemic. Over the past three years, Apple’s workforce grew about 20%, while competitors such as Meta and Amazon almost doubled their employee count in that same period.
Mr. Cook said the company is managing costs very tightly and is curtailing hiring in certain areas while continuing to hire in others.
“I view layoffs as a last-resort kind of thing,” Mr. Cook said. “You can never say never. We want to manage costs in other ways to the degree that we can.”
Mr. Cook said that in addition to manufacturing challenges, the economic climate played a role in the company’s results.
“We estimated that we would have grown on the iPhone absent the supply constraints,” Mr. Cook said in an interview.
The foreign exchange rate was also a challenge for the company, Mr. Cook said. Adjusted for currency fluctuations, company revenue grew, he said.
For the important holiday quarter, the company struggled to keep up with demand for its latest premium iPhone 14 Pro models as China’s zero-Covid policies caused upheaval at a smartphone factory in Zhengzhou. In November, Apple issued a rare warning about disruptions to the output of the iPhone 14 Pro.
Apple has been able to get its supply chain back in order and increase its iPhone 14 production, and China has loosened its Covid-19 restrictions. Analysts now expect iPhone demand to be pushed to the current March quarter, but some have also expressed concern that Apple might face reduced demand for iPhones and other products.
“With supply-chain challenges largely normalized, we now believe [Apple] is entering a period of slower demand due to macro factors,” wrote Krish Sankar, a senior research analyst at investment bank Cowen, in a recent note to investors.
Overall consumer spending is also starting to sputter in the U.S., which could have an impact on the extent to which iPhone demand picks up in the March quarter, analysts said.
Sales in the company’s services business, which includes the App Store and streaming services such as Apple TV+, rose in the December quarter, with a 6% increase to $20.8 billion. Mr. Cook has sought to bolster the services unit as a way to strengthen the company’s earnings potential beyond iPhone sales.
Apple now has 2 billion active devices, a marker the company called “a significant milestone.” Mr. Cook said that international growth was strong for the quarter, including in Brazil, India, Indonesia, Thailand, and Vietnam.
Global smartphone sales have fallen. Worldwide shipments suffered their largest-ever quarterly decline in the October-to-December period last year, falling 18% to about 300 million units, according to market research firm International Data Corp. But Apple’s iPhone business declined the least among the top smartphone vendors, with iPhone shipments dropping nearly 15%.
In recent years, as Covid-19 forced closures of schools and sent millions of people home to work, demand for Apple products rose significantly. IPhone sales received a further lift as consumers upgraded their smartphones to gain ultrafast 5G wireless capability. For the fiscal year that ended in September, Apple reported a profit of almost $100 billion, a record for the company and the highest annual total in history for a U.S. corporation.
To date, Apple’s core business has also remained more resilient against broader market downturns compared with other tech giants, although last year the company wasn’t immune. For the September quarter, Apple said its services business grew 5% from the same period last year to $19.2 billion, the slowest growth rate for the segment since the company began breaking it out in its financial reporting in 2015.
Apple has slowed hiring in parts of the company and the company could reduce its workforce through attrition and by not filling the roles of departed employees, analysts said.
The company is preparing to announce this spring a new product with a headset that combines augmented and virtual reality. With a higher price point, the device isn’t expected to be a big business at the outset and will have low initial production targets, according to analysts.
After Apple’s production difficulties late last year, Wall Street will also be looking at how the company diversifies its supply chain and addresses China. The supply-chain issues have spurred Apple to more aggressively look outside China to manufacture its hardware, The Wall Street Journal recently reported.
Alphabet and Google CEO Sundar Pichai said Thursday that the company will soon add advanced AI features to its search engine.
On Tuesday, CNBC reported that Google is testing some of these features with employees as part of a “code red” plan to respond to ChatGPT, the popular chatbot backed in part by Microsoft. They include a chatbot called “Apprentice Bard,” as well as new search desktop designs that could be used in a question-and-answer format.
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“Very soon, people will be able to interact directly with our newest, most powerful language model as a companion to Search, in experimental and innovative ways,” he said, referring to Google’s conversation technology LaMDA, or Language Model for Dialogue Applications.
Pichai said that it will release the large language model “in the coming weeks and months” so the company can get more feedback.
Executives frequently returned to the subject of artificial intelligence on the company’s fourth-quarter earnings call. “AI is the most profound technology we are working on today,” Pichai said in his opening remarks.
The effort to direct attention to AI comes as the company faces pressure on its core advertising business and a competitive threat from one of its historic archrivals.
Thursday’s earnings report marked the fourth consecutive quarter in which the company missed Wall Street’s expectations for both earnings and revenue, according to expectation estimates provided by Refinitiv. Weakness in the advertising business appeared in an 8% revenue decline in YouTube’s advertising revenue and a 2% fall in Google’s Search and Other revenue.
Google is also facing pressure from ChatGPT, which was launched late last year by Microsoft-backed OpenAI. Google’s prime business is web search, and the company has long touted itself as a pioneer in AI. But generative AI products like ChatGPT could pose a threat to the entire model of internet search, as they can provide creative answers to more complicated queries.
Microsoft is reportedly considering adding ChatGPT functionality into its own search engine, Bing. The threat of falling behind in AI has even reportedly spurred Google co-founders Larry Page and Sergey Brin to take a direct interest in the efforts years after they stepped down from day-to-day work at the company in 2019.
In addition to touting forthcoming search improvements, the company also said that starting in the first quarter, it will change the financial reporting structure for its DeepMind artificial intelligence segment so it rolls up to Google, instead of the Other Bets segment that includes long-payoff projects like self-driving cars and venture capital investments.
Google acquired the London-based company in 2014 for more than $500 million and then placed it under the Other Bets umbrella when the company reorganized as Alphabet in 2015. DeepMind turned a profit for the first time in 2021.
This reporting change “reflects the strategic focus in DeepMind to support each one of our segments,” Alphabet’s finance chief Ruth Porat said on Thursday’s earnings call.
“To be very clear, we consolidate Other Bets into Google only when that bet supports products and services within Google or Alphabet broadly,” Porat added, pointing to cybersecurity company Chronicle, which it rolled into Google’s cloud unit in 2019. “That was very effective.”
Pichai also said the company will also provide “new tools” and APIs for developers, creators, and partners to “empower them to discover new possibilities with AI. He added, “these models are particularly amazing for composing, constructing and summarizing.”
But Pichai also warned that it will need to scale slowly, saying he views large language usage as still being in its “early days.”
CNBC previously reported that employees had asked about the threat from ChatGPT in an internal meeting, and Google’s Jeff Dean told employees that Google has much more “reputational risk” in providing wrong information, and thus was moving “more conservatively than a small startup.”