10/25/2022: Google Q3 Earnings Signified a Slowdown in Digital Ad Spending
Google Missed Q3 revenue and profit expectations
Google reported Q3 earnings after market close today. It was quite a big miss. Q3 revenue is $69.09B vs. $70.58B expected. EPS is $1.06 vs. $1.25 expected. YouTube advertising revenue is $7.07B vs. $7.42B expected . Youtube revenue actually dropped 2% YoY, which is the first time this ever happened since Alphabet started reporting Youtube revenue separately in their earnings reports. Google Cloud is $6.9 billion vs. $6.69 billion expected. Google Cloud revenue grew 37.5% YoY, which is quite impressive given the current environment.
Theoretically, Google *missed* their revenue and profit expectations. But I am not surprised at all. People have been talking about this digital ad slowdown for quite a while. Sure, the Apple privacy changes crippled personalized advertising. But search ads are mostly query based, which is quite resilient to the Apple changes. Their Q3 search revenue only grew 4% YoY. In comparison, Q2 revenue grew 13.5% YoY and Q1 revenue grew 24% YoY. I believe we are seeing a general slowdown in digital advertising. The digital ad market grew dramatically during the pandemic. That level of growth is probably not sustainable in the long run. It’s time to reset the growth expectations. Google still has a phenomenal high-margin $200B+ a year business. I believe it will be great to use this lower-growth period to make the company more efficient.
It’s worth noting that YouTube ad revenue for Q3 dropped 2% YoY. YouTube revenue was still growing around 5% in Q2. This makes me worry about Meta’s earnings tomorrow. Meta already saw a YoY drop in revenue in Q2 this year. Again, I think a 10+% YoY revenue decline is quite likely but analysts are currently predicting a 5.6% decline. Chances are Meta is going to miss earnings tomorrow. It would be interesting to see how the market reacts to the bad news that everyone already knows.