Third quarter revenue rose 6% to $69.1bn, with advertising revenue rising from $53.1bn to $54.5bn. Both of these figures were lower than analysts expected.
Within advertising revenue, YouTube revenue dipped to $7.1bn from $7.2bn, where analysts had been expecting growth of around 3%. The group said it was seeing reduced advertising spending in certain areas including insurance, loans, mortgages and cryptocurrency.
Google Cloud revenue rose 37.6% to $6.9bn, but losses widened over $50m to $699m.
Total group operating profit was 18.5% lower at $17.1bn, as total costs and expense rose around $8bn.
Alphabet had net cash (readily available cash and investments minus debt obligations) of $101.6bn, as at the end of September.
The shares fell 6.1% in pre-market trading following the announcement.
View the latest Alphabet share price and how to deal
Our view
Markets are spooked by Alphabet's advertising revenue slowdown. While it's not unusual for difficult economic conditions to result in weaker advertising demand, the speed of the changing tide has been a surprise. Together with much higher costs means the usually slick operating machine has seen operating profits shrink back, and we can't rule out further pressure while conditions are so tough.
With the likelihood of further ups and downs front of mind, it's worth acknowledging that Alphabet still has fundamental strengths.
The scale of the group's advertising businesses cannot be overstated. If you own a business in today's world, chances are you will need to pay to get that marketing material in front of Google or YouTube's users. So, while we're seeing demand ebb, we think it's unlikely to ever totally float away - and that's not something all ad-reliant tech names can say.
Alphabet also has the firepower to invest in various side-projects. Most notable is Google Cloud, where revenues are growing incredibly quickly. Google's younger operations here mean the division is still heavily loss making, but the cloud is building sufficient steam that profits should be able to break through the mist within a reasonable timeframe. Other bets, that range from self-driving cars to life sciences barely generate any revenues let alone profit. One of these moon-shots could eventually be as world changing as Google itself, but that's some way off.
Our main concern relates to the competition authorities. Alphabet has already racked up billions in fines, and its increasing dominance puts the group at the forefront of regulators' minds. Regulators who have an increasing willingness to act. Further political and legal scrutiny will happen - it's a case of when not if. Enormously deep pockets mean Alphabet can handle these blips on a financial-front, but it becomes a bigger question if today's more ethically-minded investors were to reach the end of their patience. This doesn't seem to have happened yet, but it's prudent to monitor.
Competition is also heating up, with the rise of short-form videos from the likes of TikTok or Instagram reels vying for Alphabet's important YouTube viewers. At this point there aren't any flashing red indicators, but as the medium develops it's a trend to watch closely.
It's easy to debate the ups and downs, threats and opportunities of this tech giant, but the fact of the matter is, Alphabet has well over $100bn in net cash languishing on the balance sheet. That means it's more than able to stomach disruption and return some cash to shareholders too.
Overall, Alphabet carries more regulatory risk than some of its peers, so it's important to keep that in mind. Despite the regulatory and wider macro threats there is potential for further growth over the long-term. Investors should however be aware there's likely some volatility waiting in the wings and near-term risk is heightened in the current environment.
Alphabet key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.