Google’s parent company, Alphabet, experienced a significant drop in its share price after revealing a historic decline in advertising revenue for its YouTube video streaming service. In the three months to September 30, YouTube ad sales fell 1.9% to $7.1 billion, indicating a slowdown in the global economy. The expected overall revenues for the period were around $71 billion, with growth of approximately 12%, but actual sales amounted to $69.1 billion. Profits of $13.9 billion were also below expectations. Consequently, the company’s shares dropped by 5.7% in after-hours trading, resulting in a loss of approximately $7.6 billion.
This decline in advertising revenue at YouTube coincided with Microsoft’s announcement of a slowdown in sales in its cloud computing division and Spotify’s revelation that its advertising revenue was growing slower than expected. Sundar Pichai, Alphabet’s CEO, acknowledged the challenges faced by the company but highlighted the healthy growth in search and cloud divisions. He also mentioned that resources would be realigned to support the highest growth priorities.
Alphabet’s share price has been following the broader technology markets and experienced a 28% decrease since January. This decline was exacerbated last week after Snap Inc, the parent company of Snapchat, reported slower-than-expected growth, leading to a 25% drop in its own share price during after-hours trading.
While Microsoft’s overall sales of $50.1 billion surpassed market expectations, the slowdown in its cloud computing division caused a 2% dip in its share price. Microsoft Azure, the company’s cloud business, grew by 35% year-on-year, slightly below the expected 40%. Additionally, the global slowdown in PC sales, linked to Microsoft’s Windows operating system, has also posed challenges. Gartner figures revealed a sharp decline of 19.5% in PC sales over the past three months, the steepest decline ever recorded by the tech consulting company. As a result, Microsoft’s market value dropped to $1.87 trillion, a 27.5% decrease from its all-time high in November 2021.
The performance of these influential tech companies, Google and Microsoft, is seen as a significant indicator of the broader US economy. The US has faced increasing economic concerns throughout 2022, including rising inflation, the strength of the dollar, and a slowdown in business spending. However, Spotify demonstrated resilience in consumer spending, surpassing sales estimates with a revenue of over €3 billion and attracting 456 million average monthly users in the July-September period. Although Spotify exceeded its target of adding six million premium subscribers in the following three months, it faced challenges due to challenging economic conditions, resulting in slower growth in advertising revenue. The company reported a net loss of €228 million, higher than the predicted €218 million loss, leading to a 4% decline in its shares during after-market trading.
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