Business

Alphabet and Microsoft miss market estimates with quarterly results

Big tech companies reported their second quarter results on Tuesday.

. Photograph: iStock

Tue Jul 26 2022 - 21:45

Google’s parent Alphabet barely missed estimates for quarterly revenue, showing that its industry-leading Google search and advertising business may be able to withstand big countries potentially going into recession over the next year.

Shares of Alphabet rose 3.5 per cent in after-hours trading.

Meanwhile, Microsoft missed estimates for quarterly revenue, hurt by a stronger dollar, slowing sales of PCs and lower advertisement spending. Its shares fell about 1 per cent in trading after the bell.

Alphabet reported second-quarter revenue of $69.69 billion (€68.9 billion), 13 per cent higher than the year-ago period, and nearly in line with the average expectation of $69.88 billion among investment researchers tracked by Refinitiv.

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Investors had been bracing for the results for weeks, with analysts tempering forecasts for ad spending. Concerns were also heightened when social media companies Snap and Twitter posted disappointing quarterly results.

Rising wages as well as rising prices of fuel and other items have forced some ad buyers this year to pare marketing, including even ads on internet services such as Google that served as an essential link to consumers during pandemic lockdowns.

Big US multinationals including Alphabet, also are increasingly bringing in less cash when converting foreign revenue because of the strong dollar.

Google’s ad business accounted for 81 per cent of the quarterly revenue, with those sales of $56.29 billion falling just below the average estimate of $56.67 billion.

The company missed sales expectations by nearly $100 million in the first quarter.

Overall profit was $16 billion, or $1.21 per share, compared with the average estimate of $1.29 per share. Alphabet’s profit tends to be unpredictable due to sporadic gains or losses — at least on paper — in the stakes it holds in many startups.

Investors look more closely at ratios of costs to sales.

With investors accustomed to gross profit margins as high as 60 per cent, Google, like many of its peers, recently began slowing hiring in some units to better manage expenses.

But at the same time, Alphabet is moving forward with expanding its cloud computing footprint, building out new offices and bringing its Google Fiber internet service to new communities.

Other factors are motivating concerns about a potential sales slowdown. Amid scrutiny from antitrust regulators on five continents, Google is taking a smaller cut from sales of apps developed by outside software makers.

Google suspended sales in Russia due to the war in Ukraine, and YouTube’s ad revenue has fluctuated as its options for advertisers grow and wane in popularity.

Separately, Microsoft missed estimates for quarterly revenue on Tuesday, hurt by a stronger dollar, slowing sales of PCs and lower advertisement spending.

Shares of the Washington-based company fell about 1 per cent in trading after the bell. The stock has lost about 25 per cent this year.

Microsoft also faces pressure from a stronger greenback as it gets about half of its revenue from outside the United States. That led the company to lower its fourth-quarter profit and revenue forecasts in June.

Microsoft’s Azure cloud service grew by 40 per cent, compared with analyst estimates of 43.1 per cent, according to Visible Alpha.

Microsoft said that advertising revenue fell from LinkedIn, Search and News. Revenue from its personal computing segment stood at $14.4 billion, compared with estimates of $14.68 billion.

Soaring inflation has squeezed spending and weighed on consumer demand for PCs, sending global shipments down 15 per cent in the second quarter, according to research firm Canalys.

Competition in the sector has ramped up since the Covid lockdowns as more businesses seek to move computing and data storage to the cloud.

It reported revenue of $51.87 billion in the fourth quarter, compared with $46.15 billion a year earlier. Analysts on average had expected revenue of $52.44 billion, according to Refinitiv IBES data.

Net income rose to $16.74 billion, or $2.23 per share, during the quarter ended June 30, from $16.46 billion, or $2.17 per share, a year earlier. — Reuters

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