May 26, 2022

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Opinion: Google's earnings should serve as a warning to investors in Facebook and other online advertising companies

Opinion: Google’s earnings should serve as a warning to investors in Facebook and other online advertising companies

Google’s lack of earnings is an indicator of a problem in the online advertising industry, and it should scare investors into Facebook and other competitors.

Google’s parent company, Alphabet Inc. Google,
-3.59%

GOOG,
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Tuesday’s first-quarter results reported that It was a little shy of Wall Street estimates, With earnings at Google and YouTube hit by the war in Ukraine and ad spending sluggish. The numbers weren’t the only problem, though: Wall Street analysts seemed particularly frustrated with Alphabet CFO Ruth Porat’s comments about a potential second-quarter slowdown and sluggish revenue growth on YouTube.

Many analyst questions have been about YouTube’s slowing growth rate, and whether or not the company is seeing more competition from TikTok. In the first quarter, YouTube revenue grew 14.39% to $6.9 billion, its slowest growth in the past five quarters. In the last year’s quarter, for example, YouTube’s revenue was up 48.7%.

Borat blamed the Russian invasion of Ukraine. Like many American companies, Alphabet suspended its business in Russia after it went to war with Ukraine. Executives revealed that the revenue loss from Russia amounted to about 1% of its total revenue.

“The war has had a huge impact on YouTube ads compared to the rest of Google,” Porat said. “This was a result of the vast majority of our trading activities being suspended in Russia as well, as I indicated earlier, the associated decrease in spending primarily by brand advertisers in Europe.”

Analysts weren’t buying into that explanation, and stuck to questions about TikTok’s rise. One analyst said he was hearing concerns about more competition from TikTok affecting YouTube’s mobile use.

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“We’ve seen huge investments in online videos and there’s been a lot of innovation, but there are over 2 billion logged-in viewers who visit YouTube every month and more people are creating content on YouTube than we’ve seen before,” Sundar Pichai, CEO Alphabet refutes it.

In addition to YouTube, concerns about the general macroeconomic advertising environment and expectations have raised some analysts. Porat said that in Google’s services, revenue growth rates in its advertising business benefited from the COVID-related weakness in 2020.

“We obviously won’t have that tailwind for the rest of this year,” she said. “As discussed in previous calls, the biggest impact from COVID on our results was in the second quarter of 2020, which means that in the second quarter of 2022, we’re going to have a hard time especially when we experience the recovery we had in the second quarter of 2021.”

Wall Street was expecting that Alphabet to weather the storm in the online advertising sector, Where AAPL is for Apple Inc. ,
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Privacy changes on iOS She had a huge impact on Meta Platforms Inc. affiliated with Facebook FB,
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And other advertising-based companies. Comments about Google’s ads and search business are likely indications that other internet companies could report more disappointing results in the coming weeks, starting with Facebook on Wednesday.

In after-hours trading on Tuesday, Alphabet shares were down 4% at one point, despite a significant increase in its share buyback plan — to $70 billion, up from $50 billion last year — likely to have occurred. Its arrows helped stave off further damage, ending it. The session is down 2.7%. Meta, which saw its stock fall nearly as much in Tuesday’s after-hours session, may not be so lucky.

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If Alphabet is no longer a port in the storm, investors will struggle to find a better alternative among its few competitors.