Google Q4 - Earnings Miss, Shares Slide

On Thursday evening Alphabet (also known as Google) reported their latest quarterly numbers. Unfortunately, the company missed top and bottom line expectations, and the stock dropped by 3% on Friday. It's worth noting that Alphabet was up 7% on Thursday, so the share price still gained over the week.

The problem for Alphabet is that advertising spending is slowing. Their crown jewel, Youtube, suffered an 8% decline in revenue. Google's cloud hosting division, which competes with Amazon (AWS) and Microsoft (Azure), grew revenue by 32% to $7.3 billion, but still made a loss of $480 million.

Google just retrenched 12 000 people, saying that it must become more efficient in a higher interest rate environment. The once-off cost of the retrenchments will be between $1.9 billion and $2.3 billion.

In a strong statement as to where the future of the business lies, artificial intelligence subsidiary DeepMind will no longer be reported in Other Bets, but will be reported as part of Alphabet's corporate costs. The rationale is that AI will become an integral part of search and advertising. We expect Google to launch more AI tools in the coming months. This will be a key issue for Google, as AI becomes more pervasive in the next decade.

When compared to other tech companies, Alphabet's share price seems cheap. Alphabet may be perceived to be a 'one trick pony', in that all of its profits come from advertising across many different platforms. If advertisers decide to reduce their digital marketing spend, Alphabet is negatively affected. Conversely, as soon as advertisers feel confident again, as recession fears dissipate, Alphabet revenues will rebound.

This is a quality business that runs services that are integral to our lives. There is a reason that society has made Google a verb.