Olivia Cavallaro Tech 07.26.2022 20:Jul PM EDT

Alphabet Q2 Earnings Report Show $2.5 Billion Drop from Last Year

Google's parent company failed to meet expected revenue in the second quarter in the face of rising costs and a weak economy.

Alphabet reported its dismal second quarter earnings report on Tuesday, revealing a revenue of $69.69 billion revenue, not quite meeting the $69.9 billion expectation. Earnings per share also failed to meet the expected $1.28 with just $1.21.

According to CNBC, Alphabet's growth slowed down to 13% during the second quarter, a massive drop from 62% last year, when consumer spending increased due to the economy's post-pandemic reopening. Meanwhile, currency fluctuations caused by the strengthening dollar decreased 3.7% points from Alphabet's revenue growth, CFO Ruth Porat explained.

Porat added that the strength of the dollar will impact the results of the following quarter even harder, describing the current outlook as "uncertainty in the global economic environment."

How Google Made Money This Quarter

Alphabet's Q2 earnings report showed that it brought in about $16 billion in profit this quarter, a $2.5 billion decrease from last year's Q2 profit of $18.5 billion. According to The Verge, Google's parent company actually brought in more revenue than it did in the second quarter of 2021, during which it brought in $61.9 billion.

However, Google spent about $3 billion more on research and development, and sales and marketing. Similar to last year, "Google Search & other" ads made the most, with almost $40.7 billion, an increase from last year's $35.85 billion that was fueled by a reopening economy that allowed for more travel and retail.

Google's Cloud business earned about $6.2 billion in revenue, but the company overall lost about $858 million. Meanwhile, YouTube advertising brought about $7.3 billion, which Variety described as the "slowest growth for the video platform that Google's seen in over two years."

The Google parent's advertising revenue saw a small increase of 12% to $56.3 billion, as marketers hit the brakes on spending amidst inflation. The biggest decrease was seen in YouTube, where sales increased a dismal 5% after its massive growth of 84% in the same period last year. Aside from decreased ad spending, YouTube is also facing tough competition from TikTok for short-form videos.

Alphabet's Outlook Moving Forward

Google warned its employees this month that the company is facing tough times. Earlier in July, Google CEO Sundar Pichai sent a memo to workers saying that the company is "not immune to economic headwinds" and will "need to be more entrepreneurial, working with greater urgency, sharper focus, and more hunger than we've shown on sunnier days."

Google also announced to employees a hiring freeze for two weeks, saying it needed more time to review their headcount. Alphabet said that from last year's 144,056 headcount, there had been a 21% increase to 174,014 full-time employees.

While Alphabet refrained from providing a revenue forecast, analysts predict that growth for the year will be at 14% with $293.9 billion, Refinitiv said. Alphabet's shares have already lost about 25% of their value this year.