Alphabet earnings call: YouTube, currency effects lead concerns in miss
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Alphabet started its earnings call with its stock down postmarket following a Q3 miss - (NASDAQ:GOOG) -5.9%, (NASDAQ:GOOGL) -5.8% - and as with other big-tech bellwethers, it started to emphasize the shifts its making to adjust to a cooler economy.
"We are sharpening our focus on a clear set of product and business priorities," CEO Sundar Pichai said. "Over the past quarter, we have made several shifts away from lower-priority efforts to fuel higher growth priorities."
"Our Q4 headcount additions will be significantly lower than Q3," Pichai said. In Tuesday's report, the company had said headcount grew to 186,779 employees from a year-ago 150,028. In Q3, it added a surprising 12,765; more than 2,600 of them came into Google Cloud through the acquisition of Mandiant.
"And as we plan for 2023 we will continue to make important trade-offs when needed and are focused on moderating operating expense growth," Pichai added.
During last quarter's earnings call, the company signaled that YouTube search was a rising concern, though Chief Business Officer Philipp Schindler then blamed most of the downbeat stance on a tough year-over-year comparison with a "very strong" 2021 Q2.
In the new call, Schindler said "On the Q2 call, we noted a pullback in spend by some advertisers on YouTube network, and these pullbacks in spend increased in the third quarter."
Search also saw a tough comparison this time around, Schindler said. "In the third quarter, we did see a pullback in spend by some advertisers in certain areas in search ads. For example, in financial services, we saw pullback, and insurance, loan/mortgage, and crypto subcategories."
Chief Financial Officer Ruth Porat directed attention to heavy headwinds from the strong U.S. dollar. Headline revenue growth of 6% would have been 11% in constant currency, she said.
"Looking to the fourth quarter, based on strengthening of the U.S. dollar quarter-to-date, we expect an even larger headwind from foreign exchange," Porat said. As she had said before, forex impact is heavier on operating income than it is on revenues, considering Alphabet's expense base is weighted heavily toward the R&D-heavy United States.