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Google’s Parent Alphabet Misses Estimates on YouTube and Europe Ads | Tech News

Google’s parent company, Alphabet Inc., reported first-quarter revenue that fell short of analysts’ expectations, a rare setback for the tech giant, reflecting slowing advertising sales in Europe and lackluster performance in its YouTube video service. The shares were down about 6% in extended trading.

The company also announced a $70 billion share buyback program.

Revenue, excluding payments to channel partners, rose 20% to $56 billion in the period ended March 31, Alphabet said in a statement Tuesday. Analysts on average expected $56.1 billion.

Chief Financial Officer Ruth Porat said the company’s revenue had been hit by the suspension of its business operations in Russia and wider unrest following the invasion of Ukraine.

“Beyond that, there was a slight pullback in ad spend in Europe,” she told Bloomberg TV. Also, “there is a lot of uncertainty in the macro environment,” she said.

The company faced a tough comparison to last year’s quarter, when it saw advertising sales grow 32% on the back of a return to business activity after the introduction of Covid-19 vaccines. 19 helped reduce the virus and lift lockdowns. This year, Google’s ad sales grew 22% in the first quarter.

YouTube generated ad revenue of $6.87 billion, compared to an average analyst estimate of $7.4 billion. In previous quarters, Google said Apple Inc.’s ban on third-party ad targeting reduced some of YouTube’s business on iPhones. Ahead of earnings, Daniel Salmon, an analyst at BMO Equity Research, lowered YouTube sales estimates in part to reflect increased competition from ByteDance Ltd’s TikTok video app.

Google’s second line of business, its network system that serves ads elsewhere on the web, was likely limited by new regulations in Europe that restricted ad targeting. Total revenue in Europe increased 19% year-over-year, but fell 12% from the fourth quarter.

Still, Google’s ad growth remains healthy, said Brian Wieser, global president of business intelligence at ad agency GroupM. “Google alone is a third of the industry. They’re still growing north of 20%,” he said. “The problem is expectations, not the business.”

Google’s search advertising business, the company’s main revenue engine, rose 24% to $39.6 billion. Cloud unit sales increased 44% to $5.82 billion. Both units exceeded estimates. In recent years, the Mountain View, Calif.-based company has spent heavily on machinery and personnel to try to catch up with market leaders Inc. and Microsoft Corp. by providing computing power and storage via the Internet.

The quarter produced “strong growth in search and cloud, in particular, which help both individuals and businesses as digital transformation continues,” chief executive Sundar Pichai said in the statement.

Alphabet’s Other Bets units — a hodgepodge of fledgling companies that includes self-driving car company Waymo and Verily, which aims to solve various health issues through technology — have generated $440 million in revenue from losses of $1.16 billion, although this is a major improvement over years before.

Net income was $16.4 billion, or $24.62 per share, compared to $17.9 billion, or $26.29 per share, in the prior year period. Analysts were expecting an average of $25.71 per share.

Alphabet shares fell to a low of $2,207.79 in extended trading after closing at $2,373 in New York. The stock had fallen about 14% this month.

(Updates with CFO comments in fourth paragraph.)

–With help from Emily Chang.