Google shares decline as YouTube experiences its first-ever decline in advertising sales

Google

Google’s parent company suffered a steep drop in its share price after disclosing the first-ever drop in advertising revenue on its YouTube video streaming service.

Sales of YouTube ads fell 1.9% to $ 7.1 billion (£ 6.2 billion) in the three months to September 30, compared with a year earlier, in the latest sign of a slowdown in the global economy.

Alphabet, the owner of YouTube and Google, was expected to record around $ 71 billion (£ 61.9 billion) in combined revenues for the period, or a growth of around 12%, but instead sales were $ 69.1. billions. Profits of $ 13.9 billion were also lower than expected.

Shares fell 5.7% in after-hour trading immediately after the results were presented, writing off about $ 7.6 billion from one of the largest companies in the world.

It came when Microsoft revealed a slowdown in sales in its cloud computing branch, and music streaming service Spotify announced that ad revenue was growing slower than expected.

Sundar Pichai, Chief Executive Officer of Alphabet, said, “Third quarter financial results reflect healthy fundamental growth in research and momentum in the cloud, while impacted by foreign exchange. We are working to realign resources to fuel our top growth priorities ”.

Alphabet’s share price has fallen 28% since January, broadly following the broader tech markets, which have seen a steady sell-off throughout the year.

The company dropped briefly last week after Snapchat’s parent company Snap Inc reported slower-than-expected growth, triggering a 25% plunge in its price during after-hours trading.

Microsoft posted total sales of $ 50.1 billion, well above market expectations of $ 49.6 billion. However, the slowdown in its increasingly prominent cloud computing division triggered a 2pc drop in the company’s share price.

Microsoft Azure, the cloud business, grew 35% year-on-year, while analysts had expected 40% growth as the business world continues its shift to cloud computing.

The Redmond, Washington DC-based company is also grappling with the fallout from a global slowdown in PC sales, which are firmly linked to the company’s Windows operating system. Data from Gartner shows that PC sales have fallen by 19.5% in the past three months, the strongest decline ever recorded by the tech consulting firm.

Microsoft’s market value stood at $ 1.87 trillion Tuesday night, down 27.5% from its all-time high of $ 2.58 trillion in November 2021.

Microsoft’s stock price followed the general slump in tech stocks, falling from $ 334.75 in December 2021 (£ 291.81) to Tuesday’s closing price of $ 250 (£ 217), a drop of just over by a quarter.

The financial health of two of the most influential US tech companies is seen as a wake-up call for the US economy at large, which has seen storm clouds rise during 2022 amid fears of a recession fueled in part by the rise in the US economy. inflation, the strength of the dollar and the slowdown in corporate spending.

In a sign of resilience in consumer spending, Spotify recorded sales of over 3 billion euros (2.6 billion pounds) between July and September, with an average monthly user count of 456 million, beating analysts’ estimates. .

The company also planned in July to add another six million premium subscribers over the next three months, a goal it surpassed by one million.

However, the Stockholm-based company warned that difficult economic conditions led to slower-than-expected advertising revenue growth.

Spotify said third-quarter profit margins were lower than expected, citing “a little softness in advertising,” currency fluctuations, and retroactive royalty payments to songwriters and music publishers.

Its net loss of € 228 million was higher than its forecast of € 218 million. The shares fell 4% in post-market trading.

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