Alphabet, Google, recently announced its latest earnings and opened the announcement with CEO Sundar Pichai’s statement about “great momentum in Cloud, YouTube subscriptions, and Pixel devices”. However, a closer look at the numbers reveals a company struggling to grow. During the holiday quarter, which is a crucial period for many companies, especially those in the advertising business, Alphabet’s revenue was almost flat compared to the previous year and its margins were also worse, resulting in lower earnings.
In contrast, Alphabet had a fantastic run during the pandemic in 2021, posting remarkable revenues and achieving record profits for several quarters in a row. However, in 2022, the company’s growth momentum has slowed, with revenue growing slower and profits shrinking. Alphabet reported revenue of almost $283 billion in 2022, a 10% increase from the previous year. However, compared to 2021’s revenue of $257.6 billion, which represented a 41% growth, the company’s revenue growth rate has more than halved. Its profits decreased from $76 billion in 2021 to just under $60 billion in 2022, a decrease of around 21%.
The fourth quarter of 2022 was even worse for Google. The company reported a revenue of $76 billion, a mere 1% increase over the same quarter in 2021, and also earned fewer profits of $13.6 billion compared to $20.6 billion. Additionally, its margin was 24% compared to 29% in the previous year.
Google’s primary sources of revenue, including advertising and services, were down year over year. Advertising was down by over $2 billion, and services, which include Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube, saw a decrease of $1.5 billion compared to the same quarter in 2021.
The company also spent over $1.5 billion more on research and development. Information on how much Google makes from hardware alone is not available, but it incurred $480 million in losses on Cloud in Q4 2022 compared to $890 million in the same quarter in 2021. YouTube advertising also saw a decrease of around $670 million, but the company hiked the price of a family plan for YouTube Premium in October. During an earnings call, Pichai stated that YouTube Music and Premium had over 80 million subscribers.
Alphabet also announced cuts in staffing and expenditures. In January, CEO Sundar Pichai announced that the company would be laying off 12,000 employees to sharpen its focus and address difficult economic conditions. The company estimates it will spend between $1.9 billion and $2.3 billion in severance costs. Despite the layoffs, Alphabet’s workforce is still larger than last quarter, with 190,234 employees compared to 186,779 in October. The company is also expected to spend around $500 million in “exit costs relating to office space reductions” in the first quarter of 2023.
In the coming years, Alphabet will face several challenges, including a massive lawsuit from the Department of Justice alleging monopolistic power over online advertising, a similar suit over its search dominance, and the rise of AI chatbots. To further compete with TikTok, the company recently launched its revenue-sharing program for YouTube Shorts. Despite some setbacks, like the shutdown of Stadia in January, Alphabet remains committed to finding new and innovative ways to stay ahead in a constantly evolving digital landscape.