What happened
Shares of Alphabet (GOOG +2.83%) (GOOGL +2.95%) opened lower today after the tech giant turned in a disappointing fourth-quarter earnings report, but by 11:38 a.m. ET they had recouped all of their losses.
The stock opened the session down 5% after falling in after-hours trading last night, but the recovery seemed to have more to do with the response to the jobs report than anything coming from Alphabet, as the Nasdaq crossed into positive territory after opening down nearly 2%. After some hesitation, investors cheered the news that the U.S. had added more than 500,000 jobs in January, showing the labor market remained resilient even in a high-interest-rate environment.
NASDAQ: GOOGL
Key Data Points
So what
Alphabet missed estimates on both the top and bottom lines. Revenue in the quarter grew just 1%, or 7% in constant currency, to $76 billion, missing estimates at $76.5 billion.
Ad revenue in the quarter actually declined 3.6% to $59 billion as the company suffered from the same slowdown in the ad market that's hitting companies like Meta Platforms.
Google Cloud was a bright spot as revenue increased 32% to $7.3 billion, and it narrowed its operating loss in the segment from $890 million to $480 million.
On the bottom line, the company saw profits fall again, with earnings per share declining from $1.53 to $1.05, which missed the analyst consensus at $1.18.
Alphabet is in the midst of a transition, cutting costs and pivoting to AI since OpenAI released its chatbot ChatGPT last November. After the quarter ended, the company said it would lay off 12,000 employees and is taking a restructuring charge of $1.9 billion to $2.3 billion for severance, most of which will come in the first quarter. It's also taking a $500 million charge for closing office space.
CEO Sundar Pichai said, "Our long-term investments in deep computer science make us extremely well positioned as AI reaches an inflection point, and I'm excited by the AI-driven leaps we're about to unveil in Search and beyond."
Now what
Alphabet does not give formal guidance, but management said on the earnings call that the impact of its efforts to make its cost structure more efficient would become more visible in 2024, implying that 2023 is likely to be a rough year.
In addition to its own restructuring, the tech titan also faces a slowdown in the ad market and potential disruption from ChatGPT.
It's likely Alphabet will look like a much different company in another year, and it may have to transform in order to protect its massive advertising business from threats like ChatGPT. For now, investors seem to be OK with that, but they should pay attention to the disruptive potential from ChatGPT and other search alternatives.
