During the third quarter, Google made $54.48 billion from ads.
Alphabet Inc., which owns Google, had disappointing ad sales on Tuesday, which caused worry in the digital media industry. This is because advertisers are cutting back on spending because the economy is getting worse.
Alphabet said that advertisers were spending less on YouTube and that financial services were spending less on Google. It also said that it planned to cut hiring by more than half.
Many people thought that Google, which has the biggest share of the digital advertising market in the world, would stay strong in an economy that was getting worse. The bad news broke those hopes and made Wall Street worry that inflation would continue to hurt advertising spending. Last week, Snap Inc.’s (SNAP.N) revenue growth was the slowest it had ever been. This made the tech sector worry about inflation and temporarily wiped out $40 billion in market capitalization.
Related: Dozens of Google’s competitors want EU tech law to be used in an antitrust case against the company.
Alphabet’s stock price dropped 6.5% after the bell.
Alphabet’s poor performance worries other companies in the same industry, especially Meta Platforms, which depend on advertising (META.O). The parent company of Facebook, which will report earnings on Wednesday, saw its stock price drop by 4.5% on Tuesday.
Alphabet’s chief financial officer, Ruth Porat, said that the drop in overall advertising revenue was due to the “very strong performance” of the last quarter. She also said that some advertisers cut back on their ad spending, which led to fewer ads being sold on YouTube.
Alphabet said that insurance, mortgage, and cryptocurrency companies were among the ones that cut back on advertising. Travel and shopping ads helped Google Search make money from ads.
In the third quarter, Google made $54.48 billion from ads, which is more than the $53.13 billion it made at the same time last year, but it was less than what analysts had expected.
The company said that its total sales for the quarter that ended on September 30 were $69.09 billion, up from $65.12 billion at the same time last year.
Refinitiv data shows that analysts, on average, expected sales to be $70.58 billion.
Jesse Cohen, a senior analyst at Investing.com, said that Google’s earnings miss this quarter shows that it is not immune to the problems facing the digital advertising industry as a whole.
Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown, said that investors are “very sensitive to changes in the tide,” so the speed of the slowdown also surprised them.
YouTube’s ad sales also went down, from $7.2 billion in the same quarter last year to $7.07 billion this year.
Alphabet’s net income dropped from $18.94 billion, or $1.40 per share, a year earlier to $13.9 billion, or $1.06 per share. Analysts had hoped for $1.25 per share in net income.
In the third quarter, the company’s operating margin went from 32% at the same time last year to 25%.
Related: Google is working with Coinbase to accept cryptocurrency as payment for cloud services.
In July, the tech giant said it would hire fewer people for the rest of the year because “we are not immune to economic headwinds.” Porat said that the company hired 12,700 people in the third quarter and expects to hire less than half of that number in the fourth quarter.
Google Cloud sales went from $5 billion a year ago to $6.9 billion during the quarter.
During a conference call with analysts, Alphabet CEO Sundar Pichai said that the company would continue to look at its projects and make “course corrections” as needed. “Times like these help to make things clear,” he said.
