Alphabet's shares drop due to underwhelming Google ad revenue.

Alphabet’s shares experienced a decline of over 6% in after-hours trading on Tuesday following the company’s report of ad revenue below analysts’ expectations.

Alphabet’s stock declines following disappointing performance in Google’s advertising revenue.

Here are the key numbers:

Earnings per share came in at $1.64, surpassing LSEG’s, formerly known as Refinitiv, expected figure of $1.59.
Revenue came in at $86.31 billion, surpassing LSEG’s expectations of $85.33 billion.
Google Cloud reported revenues of $9.19 billion, surpassing expectations of $8.94 billion, as per StreetAccount.
YouTube advertising revenue reached $9.2 billion, slightly below the anticipated $9.21 billion as reported by StreetAccount.
According to StreetAccount, traffic acquisition costs totaled $13.9 billion, compared to $14.1 billion.

Alphabet announced its most rapid quarter of revenue expansion since early 2022, with sales surging by 13% from $76.05 billion compared to the previous year, as stated by the company. Nevertheless, ad revenue amounted to $65.52 billion, slightly below analysts’ projections of $65.94 billion, as reported by StreetAccount. YouTube, a significant contributor to the enhanced growth, fell slightly short of anticipated figures.

Investors, though the results generally exceeded expectations, remained unsatisfied, causing the stock to reach new highs last week. Facebook’s advertising sector is expanding rapidly, while TikTok continues to pose a persistent competitive challenge as younger demographics gravitate toward the platform for creating short, viral content.

Google Cloud remains a significant growth driver, experiencing a 26% expansion in the fourth quarter compared to the previous year. The cloud division is now contributing to profits after years of losses while trying to compete with Amazon Web Services and Microsoft Azure. In the fourth quarter, operating income reached $864 million, a notable improvement from the $186 million loss recorded a year ago.

CEO Sundar Pichai maintains a focus on investing in artificial intelligence and integrating new generative AI tools into Google’s core products. Pichai has emphasized the need to reallocate resources, resulting in further layoffs following last year’s reduction of 12,000 employees, roughly 6% of the total workforce.

“We are encouraged by the continued growth in Search and the increasing impact of YouTube and Cloud,” stated Pichai in the recent press release. “Each of these segments is already reaping the benefits of our AI investments and advancements in innovation.”

In December, Google introduced Gemini, its largest and most advanced AI model yet, which the company plans to offer to customers through Google Cloud for integration into their applications.

Alphabet incurred severance and related charges of $2.1 billion in 2023 due to last year’s workforce reductions. Additionally, Google’s exit from certain offices resulted in charges of $1.2 billion for the quarter and $1.8 billion for the year.

During the earnings call, Alphabet’s Chief Financial Officer, Ruth Porat, disclosed that severance-related expenses for the first quarter would amount to approximately $700 million.

In the fourth quarter, net income surged 52% to $20.7 billion, or $1.64 per share, compared to $13.6 billion, or $1.05 per share, in the previous year. The operating margin also expanded from 24% to 27%.

Other Bets, encompassing businesses like Waymo and Verily, saw revenue climb to $657 million from $226 million the year before, with losses narrowing to $863 million from $1.24 billion.

Despite a recent after-hours drop, Alphabet’s shares have risen by 56% over the past year. Meanwhile, Meta and Microsoft have also hit new highs as investors continue to favor tech stocks.

Although Microsoft reported better-than-expected financials on Tuesday, its stock price fell post-announcement. Amazon, Apple, and Meta are slated to release their results on Thursday.