Alphabet Shares Fall After Quarterly Earnings Reveal Slowing Revenue Growth

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Topline

Shares of Google-parent company Alphabet plunged more than 5%—adding to severe losses so far this month—after the company reported lackluster first-quarter earnings on Tuesday which showed a slowdown in revenue growth while also announcing a $70 billion stock buyback.

The earnings miss dragged Alphabet shares lower, with the stock down nearly 20% this month alone.

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Key Facts

Alphabet reported first-quarter revenue ($68 billion) and profits that came in slightly below expectations, causing shares of the company to fall roughly 5% in after-hours trading.

While overall revenue was up from roughly $55 billion last year, it grew at a much slower pace, up 23% from last year, when revenue had grown 34% from 2020.

Alphabet saw a boost in its core search advertising business as businesses spent more on marketing coming out of the pandemic, but the company is now contending with slowing revenue growth.

While Google Cloud revenue was a bright spot—coming in slightly above expectations at $5.8 billion, advertising revenue from YouTube took a hit during the quarter, well below expectations at roughly $6.9 billion compared to $7.5 billion expected.

Alphabet’s board of directors, meanwhile, also authorized a $70 billion in stock buybacks, a major increase from the $50 billion authorized last year.

Shares of Alphabet had fallen nearly 4% on Tuesday ahead of its earnings report, as Big Tech stocks led the declines in yet another bad day for markets, with the Dow plunging 800 points.

Tangent:

Adding to uncertainty around tech stocks in recent weeks was a big earnings miss by Netflix, with the streaming giant reporting that it lost subscribers for the first time in over a decade. Citing increased competition and “password sharing,” the company said that it expects to lose more subscribers in the current quarter. Netflix co-CEO Reed Hastings said that in an effort to return to growth, the company would explore offering a lower-priced subscription tier with ads, though it will take several years to implement.

Crucial Quote:

“The quarter is being presented in a negative light” because Alphabet missed expectations, but the actual numbers “aren’t awful, with some modest upside in the core search business,” says Vital Knowledge founder Adam Crisafulli. “YouTube is going to be a source of legitimate anxiety, but on the bright side this isn’t another Netflix),” he adds, calling the $70 billion buyback authorization “an added positive.”

Key Background:

Alphabet is one of the first Big Tech companies to report first quarter earnings at a time when the sector has been hit by big losses this year, as investors worry about the Federal Reserve’s aggressive interest rate hikes to combat inflation. Alphabet’s stock has fallen roughly 17% so far in 2022, while the Nasdaq Composite index down 19% this year.