Google shares plummet as YouTube suffers first drop in ad sales

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Google

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

YouTube ad sales fell 1.9pc to $7.1bn (£6.2bn) in the three months to September 30, compared to a year earlier, in the latest sign of a slowdown in the global economy.

Alphabet, the owner of YouTube and Google, was expected to report around $71bn (£61.9bn) in overall revenue for the period, a growth of around 12% – but instead sales were $69.1 billion. Profits of $13.9 billion were also lower than expected.

Shares fell 5.7% in after-hours trading immediately after the earnings release, wiping around $7.6 billion from one of the world’s biggest companies.

It came as Microsoft revealed slowing sales of its cloud computing arm and music streaming service Spotify reported advertising revenue was growing slower than expected.

Sundar Pichai, Alphabet’s Chief Executive Officer, said, “Third quarter financial results reflect healthy fundamental growth in search and momentum in the cloud, albeit impacted by currency exchange rates. We are working to realign resources to fuel our highest growth priorities. »

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

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

Microsoft reported overall sales of $50.1 billion, well above market expectations of $49.6 billion. However, the slowdown in its growing cloud computing division triggered a 2% drop in the company’s share price.

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

The Redmond, Washington DC-based company is also grappling with the fallout of a global slowdown in PC sales, which are firmly tied to the company’s Windows computer operating system. Gartner figures show PC sales have fallen 19.5% in the past three months, the steepest drop ever recorded by the technology consultancy.

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

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

The financial health of two of America’s most influential tech companies is seen as a bellwether for the broader US economy, which has seen growing storm clouds build in 2022 in a recession fears fueled in part by rising inflation, the strong dollar and slowing business spending.

In a sign that consumer spending is holding up, Spotify recorded sales of over €3bn (£2.6bn) between July and September, with an average monthly user count of 456m, topping analysts’ estimates.

The company also predicted in July that it would add an additional six million premium subscribers over the next three months, a target it beat by one million.

However, the Stockholm-based company warned that tough economic conditions were leading to slower-than-expected advertising revenue growth.

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

His net loss of 228 million euros is higher than his own forecast of 218 million euros. Shares fell 4% in aftermarket trading.

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