Google parent Alphabet has a 'significant multi-year effort' underway to save costs, chief executive Sundar Pichai said on April 25, as the slowdown in the digital advertising market continues to impact its core business.
The company's advertising revenue fell to $54.55 billion in the first three months of 2023, down from $54.66 billion in the same period last year, marking the second consecutive quarterly drop and the third-ever decline since the company went public in 2004. That said, these numbers surpassed analysts’ estimates.
In January, the internet giant announced that it will cut 12,000 jobs, or 6 percent of its workforce across the world. Alphabet stated that it has recorded a $2 billion employee severance charge related to these job cuts.
Other efforts include making its data centers more efficient, redistributing workloads and equipment where servers aren't being fully utilised, improving machine utilisation, and finding more scalable and efficient ways to train and serve machine learning models, in addition to improving external procurement, according to Pichai during the company's earnings conference call on April 25.
"This is important work as we continue to significantly invest in infrastructure to drive our many AI opportunities," he said.
Alphabet stated that it is also taking steps towards optimising its real estate portfolio to ensure it meets its current and future needs. In Q1 2023, the company recorded a charge of $564 million related to office space reductions.
"We’ll continue to use data to determine additional areas for durable savings," Pichai said.
During the earnings call, Alphabet chief financial officer (CFO) Ruth Porat reiterated that they will be meaningfully slowing the pace of hiring in 2023, while still investing in priority areas, particularly for top engineering and technical talent.
Rising AI competition
Google is also facing escalated competition from rivals such as Microsoft and OpenAI's ChatGPT, thanks to the latest advances in generative artificial intelligence (AI) technologies.
To counter this threat, Google is infusing AI-powered features across its products including Search, Maps, Translate and its business productivity suite Workspace. It also introduced a ChatGPT rival called Bard that recently added the ability to generate, debug and explain code across more than 20 programming languages including C++, Go, Java, Javascript and Python.
For developers, the company opened access to one of its most advanced AI language models called Pathways Language Model (PaLM) through an API, enabling them to start building generative AI applications in a quick fashion.
Last week, Alphabet also combined two of its AI research groups - DeepMind and Google Brain - into a single unit called Google DeepMind. The company said this move will help them accelerate their progress in AI and develop more capable AI systems in a safe and responsible manner.
Pichai said during the earnings call that they have "made good progress" in terms of enabling consumers and organisations to benefit from their AI-based products
"I’ve compared it to the successful transition we made from desktop to mobile computing over a decade ago. Our investments and breakthroughs in AI over the last decade have positioned us well," he said.
Pichai stated that the company will integrate AI across its products, including its mobile operating system Android and Pixel devices, in the near future to help "people, businesses, and society reach their full potential with AI."
However, he remained cautious about the rollout of these technologies, possibly in an effort to reduce the potential misinformation that these products could cause around the world.
"We’ll continue to incorporate generative AI advances to make Search better in a thoughtful and deliberate way. We’ll be guided by data and years of experience about what people want and our high standards for quality. We’ll test and iterate as we go because we know that billions of people trust Google to provide the right information," he said.
Financial performance
Google's overall revenues grew by 3 percent year-on-year (YoY) to $69.8 billion, while net income fell 8 percent YoY to $15 billion.
Google's Cloud unit posted its first-ever profit of $191 million in Q1, while sales increased by 28 percent YoY to $7.45 billion. Porat mentioned during the call that they continue to see slower growth of consumption as customers optimised their cloud costs reflecting the uncertain macro environment.
"We remain focused on driving long-term profitable growth in Cloud, while continuing to invest given the substantial opportunity," he said.
YouTube's advertising sales declined by 3 percent YoY to $6.69 billion for the quarter, although the company is seeing "signs of stabilization" in terms of ad spend, Porat said.
He also mentioned that the company is witnessing significant subscriber growth in YouTube's subscription business (YouTube Music Premium and YouTube TV) but didn't disclose any specific numbers.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
