Google's Ad Revenue Is Down Amid Looming Advertiser Pullback

Last year, as the economy began to cool from a post-lockdown shot in the arm, and Apple’s privacy changes started to cripple social platforms’ ability to execute targeted advertising, tech companies faltered—but Google seemed to be insulated. A mainstay of digital ad plans for decades, and less vulnerable to identifier deprecation as an intent-based media, advertisers said Google was a beneficiary as spending on Meta and other platforms fell. Now, Google is catching up to the pain facing the rest of the tech industry. In the fourth quarter of 2022, advertising revenue fell 3.6% year-over-year to $59 billion. That encompassed a decline in both its flagship search business, which faltered by 1.6%, and YouTube, which fell by 8% and missed street estimates. How Penske Media Is Growing Revenue by Monetizing Its Cookieless Inventory On an earnings call, Google CEO Sundar Pichai attributed the decrease in revenue to pullbacks in advertiser spend and the impact of foreign exchange rates. The company also noted tough comps given the very recent economic boom. Google Network, which includes the ad-tech business, dropped nearly 9%. The Department of Justice sued Google last week, alleging its ad-tech unit was anticompetitive following a 2020 lawsuit from a group of attorneys general also targeting the business. While Google’s overall fourth-quarter revenue of $76 billion grew from the prior quarter by 1%, it still missed consensus estimates. Search, which still accounts for more than half of the company’s revenue, is under threat from new ways people are finding information, notably TikTok and ChatGTP. But Google is positioning the rise of AI as an opportunity, not a threat. “AI is the most profound technology we are working on today,” Pichai said. Pichai highlighted the company's plans to use AI to enhance its search product and improve its advertising products. It will also break out revenue for its AI unit DeepMind starting in the first quarter. AI has already begun upending Google’s existing ad products, notably Performance Max, which chief business officer Philipp Schindler highlighted on the call, noting it drove a 12% increase in conversion value compared to previous Smart Shopping campaigns. While marketers have acknowledged the prowess of the tool, some have been rankled by its lack of transparency. Schindler cited other goals within the ads business, including growing Google Shopping and monetizing YouTube Shorts—views for the TikTok competitor have increased by two-thirds year-over-year, and the company just made Shorts monetizable for creators. Despite YouTube’s softness, Alphabet CFO Ruth Porat highlighted YouTube subscriptions as a boon to Google’s bottom line.

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Google Reports Decreased Ad Revenue Amid Looming Advertiser Pullback

Spending on both search and YouTube fell, and the company missed street estimates

Catherine Perloff

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Catherine Perloff