By Sheila Dang and Eva Mathews
(Reuters) -Google parent Alphabet Inc’s disappointing ad sales sparked worries across the digital media sector on Tuesday as advertisers cut back on their spending in the face of an economic slowdown.
The negative results shattered many expectations that Google, which is the world’s largest digital advertising platform by market share, would remain strong in a weakening economy and reinforced worries on Wall Street that inflation will continue to hurt advertising spending. Last week, smaller rival Snap Inc’s slowest-ever revenue growth rate sent inflation fears through tech sector and temporarily wiped out $40 billion in market capitalization.
Shares in Alphabet fell 5.5% in trading after the bell.
Alphabet’s weak results raises concerns for other companies in the sector, especially advertising-dependent Meta Platforms. The Facebook parent, which reports results on Wednesday, saw shares drop 3.3% on Tuesday.
Google’s advertising revenue was $54.48 billion in the third quarter, compared with $53.13 billion last year but came in below analysts’ expectations.
“We’re working to realign resources to fuel our highest growth priorities,” said Ruth Porat, Alphabet’s chief financial officer, in a press release.
The company said total revenue was $69.09 billion in the quarter ended Sept. 30, compared with $65.12 billion a year earlier.
Analysts on average expected revenue to be $70.58 billion, according to Refinitiv data.
“Google’s earnings miss this quarter proves it’s not immune to the challenges facing the digital advertising industry at large,” said Jesse Cohen, senior analyst at Investing.com.
Ad sales on streaming video site YouTube also declined to $7.07 billion, from $7.2 billion in the prior-year quarter.
Alphabet’s net income fell to $13.91 billion, or $1.06 per share, from $18.94 billion, or $1.40 per share, a year earlier. Net income missed analyst expectations of $1.25 per share.
The company’s operating margin declined to 25% in the third quarter, from 32% in the prior year.
The tech giant said in July it would slow the pace of hiring for the rest of the year, saying it was “not immune to economic headwinds.”
Revenue from Google Cloud rose to $6.9 billion during the quarter, from $5 billion a year earlier.
(Reporting by Eva Mathews in Bengaluru and Sheila Dang in Dallas; Editing by Anil D’Silva and Lisa Shumaker)