Google CEO Sundar Pichai has been on a belt-tightening mission at Google over the past three months, so it seems he saw this coming: Parent company Alphabet’s latest earnings are kind of a disaster. The company’s Q3 2022 earnings were released last night, and they show a 27 percent drop in profits compared to last year, with weaker-than-expected earnings and revenue.
Revenue was up 6 percent year over year to $69.1 billion, a sharp growth decline from 2021 Q3, which saw 41 percent growth. Profits were at $13.9 billion, down from $18.9 billion in Q3 2021. As usual, Alphabet earnings are mostly about Google ad revenue and click-through rates, with the company citing reduced spending from the “insurance, loan, mortgage, and crypto subcategories” in particular. Worries about the economy and inflation are causing many Google customers to cut their ad budgets.
Alphabet doesn’t break down the non-ads business in much detail, but the two biggest money losers on Alphabet’s reports are the “Other Bets” section and Google Cloud. Other Bets lost $1.6 billion, more than the $1.29 billion loss a year ago. “Other Bets” is the “non-Google” part of Alphabet and includes long-term R&D projects like Waymo self-driving cars and the “Wing” drone delivery project. Google says the only significant revenue generators for Other Bets are the “health technology” projects—that would be Verily and/or Calico—and “Internet services,” aka Google Fiber.
The other big loser is Google Cloud, which lost $699 million this quarter, up from $644 million in Q3 2021. “Google Cloud” on the earnings report combines the Amazon Web Services-fighting infrastructure business and Google Workspace’s suite of productivity apps like Gmail and Google Docs. Workspace definitely earns money by showing ads to its 3 billion users, charging for user storage, and charging businesses for Gmail accounts with custom domains. The infrastructure business—Google Cloud Platform—is growing, but it’s still struggling as the No. 3 cloud provider behind Amazon and Microsoft. Google is taking a “longer-term path to profitability” with Cloud Platform.
Sundar Pichai has been gearing up for this report all quarter. Saying that Google’s productivity is “not where it needs to be,” Pichai has slowed hiring since August, revamped the employee evaluation process, and said the company should be “more mission-focused” and “20 percent more efficient.”
The Google Grim Reaper got a workout, too; Google Hardware’s laptop division was shut down, the experimental “Area 120” group was forced to ax half its projects, the Project Loon leftovers were spun out into a separate company, and Google Stadia was shut down. YouTube has been trying (and canceling) a series of revenue-boosting experiments like adding up to 10 unskippable pre-roll ads to videos and charging for 4K resolution, but it seems like the change that will stick is a 27 percent price hike for YouTube Premium family plans. The latest rumor is that Google Assistant—which doesn’t generate significant revenue—will have to cut support for various hardware platforms.
Google has hope for the future, though, with the company’s financial executives repeatedly highlighting the plan to roll out ads to “YouTube Shorts” later this year. For the first time in a while, YouTube is facing serious competition from a rival video site—TikTok—and YouTube Shorts is a straight-up clone of that service. The plan to monetize Shorts also includes creator ad revenue sharing in 2023, at which point the bite-sized YouTube video site will be fully operational.