Alphabet Inc, the parent company of Google, faced disappointing ad sales in the third quarter, leading to concerns within the digital media industry. The economic slowdown led many advertisers to reduce their spending, contradicting previous expectations of Google’s strength in a weakening economy. This has caused worries on Wall Street about the potential impact of inflation on advertising expenditure.

The negative results from Alphabet have had a ripple effect on other companies in the sector, most notably Meta Platforms, which heavily relies on advertising. Following Alphabet’s weak results, shares in Meta Platforms, the parent company of Facebook, dropped by 4.5%. Meta Platforms is set to release its own results on Wednesday, adding to the anticipation and anxiety in the market.

Ruth Porat, the Chief Financial Officer of Alphabet, attributed the slowdown in advertising revenue to the outstanding performance in the previous quarter. Lower ad sales on YouTube were primarily driven by certain advertisers reducing their spending. Specifically, companies in the financial services sector, such as insurance, mortgages, and cryptocurrencies, scaled back their advertising expenditure. However, the decline in search ad revenue was partially offset by the travel and retail sectors.

In the third quarter, Google’s advertising revenue reached $54.48 billion, a slight increase from $53.13 billion the previous year but below analysts’ expectations. The company’s total revenue for the quarter was $69.09 billion, compared to $65.12 billion in the same period last year. Analysts had predicted revenue to reach $70.58 billion, highlighting the disappointment in Alphabet’s performance.

Jesse Cohen, a senior analyst at Investing.com, commented on Google’s earnings miss, stating that it reflects the challenges faced by the digital advertising industry as a whole. The decline in ad sales also affected YouTube, with revenue dropping from $7.2 billion in the prior-year quarter to $7.07 billion.

Alphabet’s net income for the third quarter was $13.91 billion, or $1.06 per share, compared to $18.94 billion, or $1.40 per share, in the same period last year. This fell short of analyst expectations. The company’s operating margin also decreased from 32% in the prior year to 25% in the third quarter.

In response to the economic headwinds, Alphabet announced in July that it would slow down hiring for the rest of the year. During the third quarter, the company hired 12,700 people, and it expects to hire fewer than half that number in the final quarter. Despite the challenges in advertising revenue, there was a positive development for Alphabet in the form of Google Cloud, which experienced a year-on-year increase in revenue from $5 billion to $6.9 billion.

Alphabet’s disappointing ad sales have raised concerns about the resilience of the digital advertising industry amidst economic uncertainties. The impact on Meta Platforms and other companies in the sector is yet to be seen as investors await further earnings reports.

For more information on this topic, you may find the following links useful:
1. Reuters: Alphabet Misses Revenue Estimates due to Slowing Ad Growth
2. CNBC: Google Parent Alphabet Falls Short on Sales as Ad Growth Slows