Google’s success makes Alphabet overcome advertising crisis – 04/26/2023 – Tech

After years of easy financial growth and popular success, Alphabet, Google’s parent company, has faced growing doubts about its future in recent months. It has come under pressure to deliver artificial intelligence technology, has seen sales growth slow and has announced the layoff of 12,000 employees to cut costs.

On Tuesday (25), Google minimized some of these issues, resuming sales growth and defying the slowdown in digital advertising.

The company reported revenue of $69.8 billion for the first quarter of 2023, up 3% year-over-year and beating the average analyst estimate of $68.9 billion. Its profits fell 8% to $15 billion – the fifth consecutive drop – although Alphabet said it booked $2.6 billion in charges related to recent layoffs and reductions in office space.

Google still faces significant challenges. Its video platform YouTube continues to be hurt by a drop in ads, and rival Microsoft gained attention and users after incorporating an AI chatbot into its search engine, Bing.

But Tuesday’s results highlighted Google’s enviable advantage as the gateway to the web for billions of people around the world, a position that cannot be quickly or easily dislodged.

In particular, Google’s search engine, the core of the world’s biggest digital advertising machine, remained strong. Revenue from this engine rose nearly 2% to $40.4 billion in the first quarter, above analysts’ estimates of $39.4 billion. The company said travel agencies and retailers spent more to reach customers on the search platform.

Sante Faustini, who runs product intelligence at data research firm M Science, said in an interview that Google’s search engine was the driving force behind the company’s turnaround, a sign of the service’s “resilience” against larger economic forces.

Since last year, rising interest rates and inflation have made advertisers more economical, hurting sales and profits for Google and its peers Snap and Meta, which own Facebook and Instagram. Google’s sales dipped slightly at the end of last year.

That put Alphabet under increasing pressure to assure investors it could still generate revenue and profit gains after years of gravity-defying jumps. Mark Mahaney, an analyst at Evercore ISI, encapsulated Wall Street’s demands in a recent note, in which he pressed the company to cut expenses, stabilize core businesses, including YouTube, and accelerate the rollout of AI technology.

The internet giant said in January it would cut 12,000 people, or 6%, of its global workforce, from the payroll. As of March 31, Alphabet had 190,711 employees, up from 190,234 at the end of last year. The company’s layoffs didn’t officially take effect until late last month.

At the same time, Google’s search engine seemed threatened by a wave of chatbots that captured the public’s imagination. In particular, tools from Microsoft and OpenAI, makers of the popular ChatGPT chatbot, began to test Google’s mettle.

In March, Google launched a chatbot called Bard, which had mixed reviews, but the company does not monetize the tool. The New York Times reported that Google will incorporate conversational AI capabilities into its flagship search engine in May and has begun work on a new, more personalized search engine designed to take advantage of advances in AI.

Last week, Alphabet consolidated its core AI teams into one unit, Google DeepMind, to move faster in the field. The move combined the London-based DeepMind AI lab with Google Brain, part of the company’s research division. DeepMind CEO Demis Hassabis took control of the group. Jeff Dean, Google’s chief research officer, had previously overseen Google Brain, which he co-founded.

On a Tuesday earnings call, Alphabet CEO Sundar Pichai said the company has made “good progress” in AI, comparing it to the company’s transition from desktops to mobile computing more than a decade ago.

“Our AI investments and innovations over the last decade have positioned us well,” he said, as he promised a host of new AI capabilities in everything from Android smartphones to software for other companies. He added that he hopes Google’s efforts to develop AI capabilities will help the company retain its large user base.

“We will continue to incorporate generative AI advances to make research better in thoughtful and deliberate ways,” he said.

Advertising sales on YouTube, Google’s video platform, fell nearly 3% to $6.7 billion in the first quarter, just above the $6.6 billion expected by analysts. The division has seen revenue drop in recent months as competition from TikTok has increased. Apple’s privacy changes to its iPhones have also limited the growth of social media platforms, making it harder to prove to advertisers that their ads are effective.

Sales of Google Cloud, the division that provides software and technology services to other companies, rose 28% to $7.5 billion. In the first quarter, the division posted a profit of $191 million for the first time.