The difficult macroeconomic context affects everyone, even Google and its parent company Alphabet are no exception. The Mountain View firm has just presented its results for the second quarter of 2022. And although the group’s financial manager, Ruth Porat, talks about “solid” performance, it is clear that there is a slowdown in growth.
During the quarter, Alphabet’s revenue increased 13% to $69.7 billion. According to the Financial Times, this marks the fourth consecutive quarterly slowdown compared to the previous year. As for the group’s profits, these were $16 billion, compared to $18.5 billion in the second quarter of 2021.
Growth that suffers from the comparison compared to the second quarter of 2021
These numbers seem huge. But compared to the 62% revenue growth in the second quarter of 2021, that of the second quarter of 2022 is rather weak.
“Last year’s very strong revenue performance continues to create challenging mixes that will weigh on annual advertising revenue growth rates for the remainder of the year”, explains Ruth Porat. A year ago, Google observed an exceptional increase in demand for its products.
Google is particularly pleased with the performance of its flagship search engine, which generated $40.7 billion, an increase of 13%. As for the Cloud activity, it saw its revenues increase by 36%, reaching $6.3 billion. However, the Google Cloud still causes losses ($858 million during the quarter.
YouTube in trouble, while the strong dollar penalizes the firm
Note that for its part, YouTube was particularly affected by the macroeconomic context. “On YouTube and the network [Google]lower spending by some advertisers in the second quarter reflects uncertainty about a number of hard-to-disaggregate factors”, explains the chief financial officer of Google. We can also assume that YouTube is suffering from competition from the social network TikTok.
Another problem: the strong dollar. Alphabet reportedly lost 3.7 percentage points in revenue growth due to currency fluctuations. Moreover, the strong dollar should further affect Google’s financial results for the next few quarters.
Google is preparing for tough times
In any case, Google is preparing for difficult or at least uncertain times.
“The uncertain global economic outlook has been in focus. Like all businesses, we are not immune to economic headwinds”Google CEO Sundar Pichai reportedly said in a letter sent to employees recently, according to a Bloomberg report.
He would also have announced that the group will slow down the pace of recruitment, and that it will mainly recruit for technical positions.
“To move forward, we need to be more enterprising, work with greater urgency, sharper focus and more hunger than we showed on the sunnier days. In some cases, this means consolidating where investments overlap and streamlining processes. In other cases, it means pausing development and redeploying resources to higher priority areas”, would also have indicated the boss of the Mountain View firm. In other words, in these difficult times, Google would like to optimize its resources.
Note that, like Google, Microsoft has also just announced its slowest growth since 2020. Year-on-year, the Redmond firm’s revenues increased “only” by 12%, to reach 51%, $87 billion.