Google parent Alphabet's revenue growth falls to slowest pace in two years

Google's parent said revenues rose 13 per cent in the June quarter to US$69.7b, missing estimates and marking the fourth quarterly slowdown in a row compared with the previous year. Photo / AP

Alphabet's quarterly revenue growth has fallen to it slowest pace in two years, confirming dour sentiment in the digital advertising industry and reflecting challenges with the strengthening US dollar.

Google's parent said revenues rose 13 per cent in the June quarter to US$69.7 billion (NZ$111.7b), missing estimates for US$70.8b and marking the fourth quarterly slowdown in a row compared with the previous year.

Operating margins also slipped to 28 per cent, down 3 percentage points from a year ago. Net income shrank to US$16b from US$18.5b a year ago, missing Wall Street's prediction of US$17.4b. Earnings per share came in at US$1.21, versus analysts' estimates for US$1.27.

The stock jumped as much as 4 per cent in after-hours trading, as investors "blew a sigh of relief" that the results were not worse, according to Jesse Cohen, senior analyst at Investing.com, who described the quarter as "disappointing  ... across almost all business units".

Analysts had been expecting weak growth, in part because revenues had soared 62 per cent a year ago as Google benefited from the coronavirus-induced work-from-home trend. In recent weeks projections had dimmed further, as fears of a US recession heightened and smaller rivals such as Snap released underwhelming earnings.

The 13 per cent growth puts Alphabet on a clear downward trajectory, as growth was 23 per cent in the March quarter, 32 per cent in the December quarter, and 41 per cent in the September quarter.

Alphabet finance chief Ruth Porat called second quarter performance "solid", noting that on a constant currency basis revenues were up 16 per cent. "We are focused on responsible capital allocation in support of our growth opportunities."

The group reported costs and expenses of US$50.2b, up 18 per cent from a year ago.

Chief executive Sundar Pichai added: "The investments we've made over the years in AI and computing are helping to make our services particularly valuable for consumers, and highly effective for businesses of all sizes. As we sharpen our focus, we'll continue to invest responsibly in deep computer science for the long term."

In advertising, revenues at Google Search grew 13 per cent to US$40.7b, while YouTube rose 5 per cent to US$7.3b. Its Google Cloud division revenues grew 36 per cent to US$6.3b, but produced a loss of US$858 million in the quarter, wider than the US$591m loss recorded a year ago. Other Bets, the division that houses Google's self-driving unit, Waymo, produced a loss of US$1.7b, versus a loss of US$1.4b a year ago.

Written by: Patrick McGee
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