Google’s advertising business has slowed down its growth at risk of recession

The current economic situation demonstrates that even giants of digital advertising like Google aren’t immune to a destructive influence of economic downturn and recession risks.

On Tuesday, Alphabet, as a Google parent company, presented its 3rd-quarter earnings report, which didn’t meet Wall Street analysts’ expectations for sales and profits because of a sharp slowdown in the company’s core advertising business.

According to the report, Google’s revenue for the previous quarter was almost $69.1 billion, that’s above its revenue for the same quarter last year only by 6%. Advertising profits increased by 2.5% year-on-year, while a year ago the increase was about 43%. The advertising business of YouTube was especially affected, and the platform’s revenue decreased by almost 2%.

Google’s net income was $13.9 billion, against analysts’ expectations of $16.6. This income is 26% lower than it was a year ago.

As a result of this disappointing report, the company’s stock fell by 6% in yesterday’s after-hours trading.

Sundar Pichai, CEO of Alphabet and Google, noted that now the company sets priorities, switching from less important tasks and processes to crucial ones. Also, it focuses its attention on a certain range of products and services in order to provide a proper distribution of the company’s resources.

Overall, the slowdown in growth is observed in many Google’s business areas, not only in digital advertising. Thus, despite the fact that Google Cloud’s revenue grew by 37% year-on-year, that’s still lower than the year-ago quarter by 45%. At the same time, the company’s net loss in this segment increased by $55 million (from $644 million to 699 million).

Senior analyst at Investing.com, Jesse Cohen, emphasized that Google's last quarter report was quite disappointing. The search giant failed to meet analysts' expectations in almost all areas of business, and especially in search system and advertising.

Ruth Porat, Google's chief financial officer, outlined that the strong growth observed in the 4th quarter of last year makes it difficult to objectively compare the company’s advertising revenue growth to the current quarter year-on-year. She also noted that Google is pressed down by a stronger U.S. dollar.

Google didn’t provide any financial forecast for the new quarter.