Alphabet’s Failure Fuels Inflation Fears in Digital Advertising.

Google parent Alphabet Inc’s GOOGL.O disappointed ad sales on Tuesday.

It sparked worries across the digital media sector, as advertisers cut back on spending in the face of an economic slowdown.

Alphabet’s cited slowing ad spending on YouTube, said financial services spending was cooling on Google and announced plans to cut hiring by more than half.

The disappointing results shattered many expectations that Google, the world’s largest digital advertising platform by market share, would remain strong in a weakening economy, and reinforced Wall Street’s concerns that inflation will continue to harm advertising spending. Last week, Snap Inc.’s (SNAP.N) slowest-ever revenue growth rate sent inflation fears through the tech sector, wiping out $40 billion in market capitalization.

Alphabet shares fell 6.5% after trading.

Alphabet poor performance raises concerns for other companies in the sector, particularly ad-dependent Meta Platforms (META.O). Shares of Facebook’s parent company, which reports earnings on Wednesday, fell 4.5% on Tuesday.
Alphabet’s chief financial officer, Ruth Porat, said the slowdown in overall advertising revenue was due to the previous quarter’s “very strong performance,” and that lower ad sales on YouTube were due to some advertisers cutting back on ad spending.

According to Alphabet, companies that reduced ad spending included those in financial services such as insurance, mortgages, and cryptocurrencies. Google Search ad revenue was boosted by travel and retail advertisers.
Google’s advertising revenue was $54.48 billion in the third quarter, up from $53.13 billion the previous year, but it fell short of analysts’ expectations.

The company reported total revenue of $69.09 billion in the fiscal quarter ended September 30, up from $65.12 billion the previous year.
According to Refinitiv data, analysts expected revenue of $70.58 billion on average.

“Google’s earnings miss this quarter demonstrates that it is not immune to the challenges confronting the digital advertising industry as a whole,” Jesse Cohen, senior analyst at Investing.com, said.
The speed with which the slowdown occurred surprised investors who are “highly sensitive to changing tides,” according to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Ad sales on YouTube fell to $7.07 billion in the third quarter, down from $7.2 billion the previous year.

Alphabet net income fell from $18.94 billion, or $1.40 per share, a year ago to $13.91 billion, or $1.06 per share. Net income fell short of analysts’ expectations of $1.25 per share.

The operating margin of the company fell to 25% in the third quarter, down from 32% the previous year.
The tech behemoth announced in July that it would slow hiring for the rest of the year, citing the fact that it was “not immune to economic headwinds.” Porat stated that the company hired 12,700 people in the third quarter and anticipates hiring less than half that number in the fourth quarter.

Google Cloud revenue increased to $6.9 billion during the quarter, up from $5 billion the previous year.
Alphabet Chief Executive Sundar Pichai said during a conference call with analysts that the company would continue to evaluate its projects and make “course corrections” as needed. “These are clarifying times,” he said.