**Alphabet’s Earnings Disappoint, Derailing Tech Stock Rally**
**Overview**
Alphabet, the parent company of Google, reported its fourth-quarter earnings on February 2, 2023, which fell short of analysts’ expectations. The company’s revenue for the quarter was $76.05 billion, a 1% increase year-over-year but below the consensus estimate of $76.53 billion. Earnings per share were $1.53, down from $2.23 in the same period last year and missing the average analyst estimate of $1.88.
**Key Factors**
**1. Slowdown in Advertising Revenue:** Alphabet’s advertising revenue, which accounts for the majority of its earnings, grew by only 2.5% to $59.4 billion in the fourth quarter. This slowdown is attributed to macroeconomic factors, including inflation and a potential recession, which have led businesses to reduce their advertising spending.
**2. Declining YouTube Revenue Growth:** YouTube advertising revenue grew by only 5% year-over-year to $8.58 billion, significantly lower than the 8.4% growth in the previous quarter. This deceleration is attributed to increased competition from other video platforms such as TikTok and the impact of macroeconomic conditions on advertiser budgets.
**3. Expenses Continue to Rise:** Alphabet’s total operating expenses increased by 16% year-over-year to $27.2 billion in the fourth quarter. This increase is primarily due to higher expenses in research and development, sales and marketing, and general and administrative expenses.
**4. Cloud Computing Growth Moderates:** The revenue from Google Cloud, Alphabet’s cloud computing business, grew by 38% year-over-year to $7.32 billion. While this growth rate remains impressive, it is down from the 44% growth in the previous quarter, indicating a moderation in cloud spending by enterprises.
**Market Reaction**
The disappointing earnings report from Alphabet sent shockwaves through the tech sector. Shares of Alphabet fell by approximately 4% in after-hours trading, triggering a broader sell-off in technology stocks. The tech-heavy Nasdaq Composite Index declined by over 2% following the news.
**Analysts’ Perspectives**
Analysts have expressed a range of opinions on Alphabet’s earnings results. Some believe that the company’s challenges are temporary and that its long-term prospects remain strong. Others express concerns about the slowdown in advertising revenue and the impact of macroeconomic factors on its business.
**Daniel Ives, Managing Director at Wedbush Securities:**
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