Google misses on expectations as YouTube ad revenue comes up short

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Google parent Alphabet (GOOG, GOOGL) will report its Q3 earnings on Tuesday as the digital advertising market is buffeted by budget cuts amid the broader economic slowdown.

Here’s what analysts are expecting from the company in the quarter, as compiled by Bloomberg, compared to how it performed in the same period last year.

Revenue ex-TAC: $58.2 billion expected versus $53.6 billion last year.

Earnings per share: $1.25 expected versus $27.99 last year

Alphabet split its stock 20-to-1 in July, reducing expected earnings per share compared to last year. The company is expected to bring in $57 billion in advertising revenue in the quarter and $63.98 billion in services revenue.

Alphabet generated $53 billion in advertising revenue and $59.9 billion in services revenue in Q3 2021. The digital advertising market has been struck by a slowdown in spending in the past few quarters, as companies pull back their budgets amid rising inflation and interest rates.

Alphabet CEO Sundar Pichai. (AP Photo/Eric Risberg)

Social media companies have been especially hammered by the cuts, with Snap reporting a net loss of $360 million and revenue growth of just 6%, its lowest yet. Meta’s Facebook has run into similar headwinds, with the company reporting its first year-over-year decline in revenue in Q2. That company is set to report its Q3 earnings on Oct. 26.

But Snap and Meta are also dealing with the aftershocks of Apple’s iOS privacy changes, which limit their ability to collect user data across the web that they then use to sell advertisements. Alphabet, however, is still able to collect plenty of user data via its search app and YouTube, providing advertisers with a safe haven from Apple’s privacy changes.

Alphabet still isn’t immune from the impact of the economic slowdown. According to Bloomberg, the search giant has cut projects at its Area 120 incubator and required workers in the group to reapply for jobs elsewhere in the company.

And according to CNBC, CEO Sundar Pichai was forced to address questions from employees who accused the firm of cutting costs when Alphabet was experiencing record profits.

Investors will also be looking for growth in Alphabet’s Google Cloud business, which the company is trying to grow into a strong competitor to the likes of Amazon’s AWS and Microsoft’s Azure services. According to Synergy Research Group, Microsoft controlled 21% of the cloud market in Q2. Amazon held 34% of the market, while Google had 10%.

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