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Recession fears are causing Google’s core business to slow down

Google is the world’s largest digital advertising company, but it isn’t immune to the effects of the recession and economic downturn on the online advertising market.

Alphabet, Google’s parent company (GOOGL), reported Tuesday earnings results for the third quarter. Wall Street analysts had expected a decline in sales and profits due to a slowdown in core advertising growth.

The company reported revenues of almost $69.1 billion, a mere 6% increase over the previous year. Google’s advertising revenues increased by 2.5% in comparison to its 43% growth a year earlier. YouTube’s advertising business, which competes against TikTok was particularly hard hit with revenue dropping nearly 2% in the quarter.

Google’s net income was $13.9 billion in the meantime, down 26% over the previous year and much lower than the $16.6 billion analysts had predicted.

After-hours trading on Tuesday saw shares fall 6% following the report.

Sundar Pichai (CEO of Alphabet, Google) acknowledged the harsher economic environment in a statement that was included with the results.

Pichai stated that they are focusing on a set of product- and business priority priorities. We are focused on investing responsibly in the long term and responding to the economic environment.

Google and other tech companies reported that they had begun to feel the effects of lower online advertising spending during the previous quarter. The industry continues to be affected by high inflation, recession fears, and the ongoing conflict in Ukraine.

Other areas of Google’s business are also showing slowing growth. Google Cloud revenue increased 37% year over year, which is a slowdown from the almost 45% growth recorded in the previous quarter. Segment’s net loss rose to $699million from $644 million during last year’s same quarter.

The quarter saw a year-over-year increase in net loss for Google’s “Other Bets”, which includes business efforts like Waymo’s self-driving vehicle unit Waymo. It also reached $1.6 billion.

Jesse Cohen, The senior Analyst at Investing.com, stated that Google had a disappointing quarter. The search giant did not perform to our expectations in almost all business units, including its core search segment.

Pichai spoke Tuesday to analysts and said that the company is now “realigning its resources to invest in our greatest growth opportunities.”

“Over the last quarter, we have made many shifts away from lower priority efforts to foster highest growth priorities,” Pichai stated. He also said that the company will reduce its headcount in the final three months.

Ruth Porat, Google’s Chief Financial Officer, stated that strong growth in the fourth quarter of 2021 will make comparisons between year-over-year growth in ad revenue to the current quarter difficult and that the strength of the US dollar will continue to weigh on the company’s results. The company didn’t provide any financial outlook for this quarter.

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