Google parent Alphabet is still making bank, but faces fierce competition in search and generative AIs
The search giant's years of easy growth may be behind itBy Adrian Potoroaca
Bottom line: Like other big tech companies, Google has been able to navigate the ongoing economic storm with little impact on its financial performance overall. However, the search giant faces significant challenges ahead as it struggles to catch up with others in the generative AI race.
Google says it made revenues totaling $69.8 billion in the first quarter of 2023, which is a three percent year-over-year increase but a modest result compared to the $76 billion recorded in the previous quarter. However, net income was slightly up at $15.05 billion versus the $13.62 billion recorded in the last three months of 2022.
This was barely above analyst expectations, but CEO Sundar Pichai noted the C-suite at Google is "pleased with our business performance." Of course, that positive outlook is partly the result of cost-cutting and job-slashing that no doubt affected the morale of remaining employees who earned significantly less than Pichai's $226 million paycheck last year.
When zooming in, we see the tech giant's years of easy domination in the search space may well be behind it. Today, there is significant pressure from companies like Microsoft that are betting big on AI-powered search, not to mention niche players like DuckDuckGo that focus on delivering search results while protecting user privacy.
The rise of tools like OpenAI's ChatGPT has prompted Google to launch a competitor called Bard before it was truly ready. This generated a lot of internal criticism, but the company is forging ahead to try and shake the image of it falling behind in the generative AI race. Still, with Bard marketed as an experiment that's mostly a magnet for controversy, people are mostly flocking to ChatGPT, which added over 100 million users in just the first two months of it becoming available to the general public.
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Otherwise, "search & other" revenue totaled $40.36 billion in Q1 2023 – a less than two percent jump year-over-year. To put things in perspective, the company saw double-digit growth in Q1 2022 and Q1 2021, which is why Google executives are now describing the more modest results as "resilience."
YouTube ad revenue was 2.6 percent down year-over-year, which is reflective of a general trend of lower advertising spend this year amid economic uncertainty. The $6.7 billion in revenue was slightly higher than analyst predictions, but this is the third quarter of decline and a cause for concern for many content creators. Perhaps one positive aspect is that Shorts – the competitor for TikTok's vertical short video format – saw 50 billion daily views in the first three months of 2023 compared to just 30 billion during the same period of last year.
Moving forward, we expect Google to focus even more on AI tools to enhance its software and services ecosystem. Last week, it fused two rival divisions – DeepMind and Google Brain – to help spearhead the efforts. To get an idea of how much the company cares about AI, the term was mentioned no fewer than 57 times during the investor call on Tuesday.
Image credit: Mitchell Luo, Mojahid Mottakin