The stock market crashed as Alphabet (NASDAQ: GOOGL) reported a severe slowdown in its core search ads business, sending tremors through the e-commerce and digital advertising industries and fueling fears of a slowdown in the economy.
In the early hours of Wednesday morning, Alphabet shares were down about 8 percent following the opening bell on Wall Street after the largest sellers of digital advertising in the US gave an update on Tuesday evening saying their third quarter revenues had risen 6 percent to $69.1 billion.
However, according to Refinitiv, apart from a brief contraction at the start of the pandemic, growth was the slowest since 2013 and fell short of analysts’ expectations of a 9 percent increase.
On Tuesday, Microsoft (NASDAQ: MSFT) heightened the gloom for the technology sector by warning there will be a definite slowdown in demand for its cloud computing services in the coming months.
However, many people viewed the cloud computing sector as less vulnerable to an economic downturn than other areas of the tech market in the past, as it had been seen as being less susceptible to search advertising.
A lackluster performance by Microsoft on Wednesday led to a drop in the stock price of 8 percent in Wednesday’s early trading. At the beginning of the earnings season for Big Tech, the news of the layoffs triggered a sell-off in shares of other industry leaders that also triggered a drop in stock prices. Both Meta, which reported its results this afternoon, and Amazon posted declines of more than 4 percent each.
Evelyn Mitchell, an analyst at Insider Intelligence, says it’s a bad sign for digital advertising. If the market conditions and customer expectations continue to deteriorate, Google may face some hard times in the coming quarters.
According to Google, search revenue grew by 4.2 percent to $39.5bn during the quarter, below estimates of the growth of 8 percent. YouTube advertising revenue, however, fell by 2 percent. In 2020, YouTube began reporting its performance separately, and ad sales declined for the first time since then.
According to Alphabet’s chief executive, Sundar Pichai, on a call with investors, the advertising market has experienced a “tough time” recently.
Ruth Porat, Chief Financial Officer, said the company trailed the very strong third quarter of 2021 when it benefited from online advertising during the Coronavirus pandemic. However, she acknowledged that some of the advertiser expenditures had been pulled back by some advertisers.
Alphabet reported that it generated diluted earnings per share of $1.06 in the first quarter of 2010, versus $1.40 in the same period of last year and lower than analysts’ expectations of $1.25.
There is an increasing sense that digital advertising is experiencing a slowdown, as well as the world’s largest economy in general, as consumers and businesses pull back on their spending when inflation is at an all-time high. There isn’t a doubt that companies turn first to marketing budgets when looking for ways to cut costs, which is a wise move.
Tuesday’s closely watched Consumer Confidence Index, a key measure of consumer confidence, fell to its lowest level in almost a year. According to the conference board, the present situation index fell to 138.9 in May, its lowest level since April 2021, a decline of 8.6%.
The Conference Board’s Lynn Franco has said that the sharp fall in the index indicates a slowdown in the economy as of the fourth quarter and has described consumer expectations as “dismal”.
It was reported on Tuesday that Spotify, the audio streaming service provider whose biggest market is in the United States, was suffering from a “challenging” economic environment during its third quarter, which led to wider losses despite strong growth in its core business of selling subscriptions. As a result, its advertising sales decreased.
It was reported last week that the share price of Snap Inc., the company that develops Snapchat, had declined nearly a third in value after it revealed that advertisers were continuing to cut marketing budgets because of inflation and rising costs.
The earnings of Alphabet paved the way for the earnings report on Wednesday from Facebook parent meta. According to analysts, the company’s third-quarter revenue dropped by 5 percent.