Google’s ad sales slow sharply as parent profits fall

Google’s corporate summer revenue growth fell to its slowest pace since the pandemic hit the economy more than two years ago, as advertisers cut spending and braced for a potential recession.

Alphabet Inc., which owns a host of smaller technology companies besides Google, reported profit of $69.1 billion in the July-September quarter, up 6% from a year earlier.

It was the first time Alphabet’s quarterly revenue rose less than 10% from April to June 2020. At the time, advertisers, who generate most of Alphabet’s revenue, took over amid economic uncertainty caused by widespread shutdowns in the early months of the pandemic.

Google’s ad sales weakened even more than Alphabet’s overall revenue. Advertising revenue was $54.5 billion, up just 2% year-over-year.

The revenue slowdown also weighed on Alphabet’s profits. The Mountain View, Calif.-based company earned $13.9 billion, or $1.06 per share, down 27% from the same period last year. Both revenue and earnings per share fell short of analysts’ forecasts polled by FactSet.

Alphabet shares fell nearly 6% in extended trading after the numbers came out. Shares have fallen more than 30% this year, wiping out about $560 billion in shareholder wealth.

In light of the revenue slowdown, Alphabet CEO Sundar Pichai said, “We are sharpening our focus on a clear set of products and business priorities.”

Google’s money-making machine, driven by its dominant search engine, has taken a steady dive as pandemic-related restrictions eased and government stimulus boosted the economy, helping Alphabet grow revenue by 41% last year, which pushed its stock price to new highs.

But the economy has floundered in recent months as central bankers have steadily raised interest rates to combat the highest inflation in more than 40 years, a strategy that threatens to tip the economy into recession. Today, many households are already tightening their budgets and avoiding certain discretionary items, a trend that is forcing advertisers to spend less on marketing their products and services.