For its first quarter, Alphabet Inc., the parent company of Google (NASDAQ:GOOGL), reported weaker-than-expected earnings and revenue on Tuesday, sending shares down more than 3% in premarket trading Wednesday.
Slow spending on advertising and a sales slowdown at YouTube contributed to the poor results.
Chief Financial Officer Ruth Porat said revenue growth at Alphabet's advertising business would face a tough comparison in the second quarter. Porat added that the results would also reflect the suspended commercial activities in Russia.
Earnings per share fell short of analysts' expectations of $25.96, which stood at $24.62 per share in the first quarter. In the same quarter last year, Alphabet recorded earnings per share of $26.29.
Overall revenue grew 23% to $68.01 billion, while Google advertising revenue rose 22.4% year-over-year to $54.7 billion in the quarter, including a 15% revenue climb from YouTube ads to $6.87 billion.
Yet, both segments missed Street's estimates of $68.1 billion and some $600 million.
YouTube, the internet's largest video destination, felt some of the sting of the ad market turmoil. To maintain its lead, Alphabet has been ramping up spending to fund a TikTok alternative, YouTube Shorts, and adding Live Shopping.
For the period, Google's cloud unit showed the most promising results, recording 44% growth as more enterprise clients move their workloads to the cloud.
Elsewhere, Google's traffic acquisition costs grew by 23.5% year-over-year, while its employee headcount increased by 20,000 year-over-year to 163,906.
Earlier, Alphabet's Board of Directors authorized a stock buyback program of $70 billion of its Class A and Class C shares, representing about 4% of its market cap. Ending the first quarter, the company reported $133.97 billion in cash and equivalents and generated an operating cash flow of $25.11 billion.
Following the results, Morgan Stanley analyst Brian Nowak lowered the price target from $3,450 to $3,270. Alphabet's average price target of $3,485.87 implies an upside potential of 46.9% to current levels.
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