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Alphabet Reports Slight Increase in Revenue but Profits Are Down

Company is focusing on investments that create long-term stability.

Google parent Alphabet released its third-quarter financials on Tuesday, reporting revenue of $69.1 billion, a 6% increase year-over-year. Operating income was $17.1 billion with an operating margin of 25%. For the third quarter of 2022, operating margin was 32%. Net income for the quarter was $13.9 billion with diluted earning per share of $1.06, compared to $18.9 billion and $1.40 diluted earnings per share for the same period last year.

Sundar Pichai, CEO of Alphabet and Google, commented on the financials in an October 25, 2022 news release.

“We’re sharpening our focus on a clear set of product and business priorities. Product announcements we’ve made in just the past month alone have shown that very clearly, including significant improvements to both Search and Cloud, powered by AI, and new ways to monetize YouTube Shorts. We are focused on both investing responsibly for the long term and being responsive to the economic environment,” Pichai said.

On the earnings call, Pichai discussed the company’s headcount, expenses and other efficiencies the company was considering. At the end of the third quarter, the company had 186,779 employees, compared to 150,028 at the end of September 2021.

“We’ve also started our work to drive efficiency, by realigning resources to invest in our biggest growth opportunities. Over the past quarter, we’ve made several shifts away from lower priority efforts to fuel higher growth priorities,” Pichai said.

“Our Q4 headcount additions will be significantly lower than Q3. And as we plan for 2023, we’ll continue to make important trade-offs where needed, and are focused on moderating operating expense growth,” added Pichai.

Ruth Porat, the company’s CFO, also commented.

“We’re working to realign resources to fuel our highest growth priorities,” Porat said.

Other third-quarter highlights

Google reported the following highlights for the period ended September 30, 2022:

  • Google reported total advertising revenue of $54.5 billion from Google Search and other, YouTube Ads, and Google Network.
  • Google Services total revenue was $61.4 billion, including $54.5 billion in Google advertising and Google other income.
  • The balance of revenue came from Google Cloud ($6.9 billion), Other Bets ($209 million) and Hedging gains of $638 million.
  • At the end of the quarter, the company had $116.3 billion in total cash, cash equivalents, and marketable securities, down from $139.7 billion in the prior year quarter.

A key area of focus will be on improving how the company monetizes YouTube Shorts for creators.

“This is a big deal for creators and for our business,” Pichai explained. “We’ll introduce revenue sharing on Shorts early next year. This update makes YouTube the only platform where creators can monetize their content across short, long and live formats at scale.”

Google also shared they continue to invest in Google Cloud and Google Workspace to support hybrid work. The company said 8 million businesses and organizations around the world use Google Workspace, including Korean Air and the U.S. Army. To support such work, the company has added 300 new capabilities.

Insider Take

Interestingly, Microsoft gave their earnings report the same day as Google, and their results were similar. Google had higher revenue and a higher headcount, but they both companies saw a dip in earnings and earnings per share while realigning growth and priorities for the future. The change in how companies work and how the economy impacts even the biggest companies is apparent. As Google spelled out, they are shifting their focus and we expect to see some strategic realignment as they close out the year and look to the future.

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