Google's Persisting Ad Slump Weighs On Alphabet's 1Q Results

Google's advertising malaise persisted during the first quarter while the internet company also grapples with advancements in artificial intelligence technology that threatens to undercut its dominant search engine.

An unprecedented downturn in Google's digital ad revenue – the company's main moneymaker for more than 20 years – came into sharper focus Tuesday with the release of the January-Marcy results for its corporate parent, Alphabet Inc.

Although Alphabet's total revenue for the period rose from the same last year, Google's first-quarter ad sales of $54.5 billion marked a slight decrease from a year ago. 

That dip followed a nearly 4% decline during the final three months of last year, making this the first time in Google has sustained back-to-back drops in year-over-year ad revenue since becoming a publicly traded company in 2004.

Google's YouTube video site, a marketing magnet in recent years, saw its ad sales decrease 2.5% from last year, marking its second consecutive quarter of erosion, too.

Boosted by growth in its cloud-computing division, Alphabet's total revenue for the quarter came in at $69.8 billion, a 3% increase from last year. But the ad woes weighed on Alphabet's earnings. 

The Mountain View, California, company earned $15.05 billion, or $1.17 per share, an 8% decrease from last year. 

More than $2 billion charges for mass layoffs and other cost cutting contributed to the earnings downturn.

Both Alphabet's revenue and profit exceeded the tempered expectations among analysts polled by FactSet Research. 

That — and a $70 billion stock buyback plan — helped boost helped lift Alphabet's stock price by 4% in extended trading after the numbers came out.     The company's shares have fallen by about 15% during the past year amid investor concerns about Google's ad slump and worries about the company's future prospects.

To help prop up its profits, Alphabet in January announced plans to lay off 12,000 employees, or 6% workforce, by far the biggest payroll purge in its history. 

But the layoffs weren't completed before the end of the quarter, leaving Alphabet with more than 190,000 employees as of March 31, roughly the same number it had Dec. 31 after the company added nearly 34,000 workers last year. Alphabet expects its workforce to reflect the recent layoffs' by the end of June.

Google's current ad slump largely reflects more cautionary spending among companies reacting to a slowdown in discretionary consumer spending amid budget-pinching rise in inflation that's also fuelling an increase in interest rates that could culminate in a recession.

But the artificially intelligent ChatGPT bot released that is being melded into Microsoft's Bing search engine is raising fears Google could be facing a longer-term threat to Google's search engine that drags down ad revenue, too.

If people embrace ChatGPT and Bing as better ways to find what they are looking for, it could siphon away traffic from the Google search engine that has long been the internet's main gateway. 

That in turn would depress Google's ad sales.

Google is trying to counter the popularity of ChatGPT with its own alternative, dubbed Bard, but so far has restrained its capabilities t o ensure it doesn't behave in a way that offends its billions of users – and advertisers in the process – and to reduce the chances it manufactures misinformation and other fabrications that the technology calls “hallucinations.”