Google advertising bounces back with return to revenue growth

Google’s advertising revenue in the opening months of 2023 came close to matching the buoyant results it reported a year ago, allowing parent Alphabet to top Wall Street’s earnings expectations and lifting its shares 4 per cent in after-market trading on Tuesday.

The results followed two quarters of earnings disappointments, as advertisers pulled back and growth in cloud computing slowed sharply. Advertising revenue had slipped 4 per cent in the final three months of last year, marking only the second quarterly decline in the company’s history.

In the latest period, by contrast, Google’s total revenues increased 3 per cent — or 6 per cent before the effect of currency movements — to $69.8bn, while earnings per share fell to $1.17, from $1.23 the year before. Wall Street had been expecting revenue of $68.9bn and earnings of $1.06 per share.

Google’s search advertising business returned to growth, with revenue rising 2 per cent in the quarter. Chief executive Sundar Pichai also highlighted 28 per cent growth in Google’s cloud division as a sign of what he claimed was renewed “momentum” in the business, which is a distant third to Amazon and Microsoft in the cloud market.

Before the figures were released, Alphabet’s shares rose 17 per cent since the start of the year as Big Tech came back into favour on Wall Street.

The largest US tech companies are expected to produce little growth, if any, in the first quarter because of difficult comparisons with the strong start they had to 2022 and a spending slowdown that has hit many parts of their businesses. However, the comparisons will be less difficult later in the year, and stock market investors have started to look ahead to a return to double-digit growth.

The latest figures reflected a number of one-off factors and accounting changes. In January, Google announced plans to cut 12,000 jobs, or 6 per cent of the total, along with a reduction in office space, resulting in $2.6bn of charges in the first quarter.

Earnings were also boosted by a near-$1bn reduction in depreciation costs, following a decision last quarter to extend the useful lives of the company’s data centre equipment for accounting purposes. Alphabet also said it had shifted an unspecified portion of its employee stock compensation costs from the first three months into later quarters this year.

In the latest quarter, Alphabet added 537 workers, far fewer than the quarterly average of nearly 8,500 it added last year, when headcount rose 22 per cent. The job cuts announced in January will largely take effect in the second quarter, the company said.