Google earnings top expectations as AI battle heats up

Google parent company Alphabet beat market expectations in the first quarter of 2023 with a net profit of $15 billion, the company said on Tuesday, in a sign that the search engine behemoth is regaining its footing.

The tech titan has found itself under pressure due to a general slowdown in advertising spending, over-hiring during a Covid-era boom and a major challenge by Microsoft on artificial intelligence.

Its quarterly revenue came in at nearly $70 billion, a billion better than expected by analysts, and in the same three-month period that the company said it would lay off 12,000 staff, or six percent of its workforce.

In its results, Google announced a $2 billion charge for expected costs for the sackings.

Google became a focus of worry when Microsoft-backed ChatGPT was released and quickly went viral late last year. The Windows maker has added the technology to its Bing search engine and office software.

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The search giant has since rushed out Bard, its own version of the language-based AI, but the release was seen as clumsy and has so far disappointed observers and company insiders, according to media reports.

An arms race over AI is expected to play out for several years and could prove to be expensive for the tech giants, with companies worried that they could lose out quickly to rivals.

To get itself battle ready for the AI wars ahead, Google has reorganized its AI division, putting the independently run Deep Mind subsidiary inside the company in a division called Google Brain.

'Serious challenges'

The host of challenges sent Google CEO Sundar Pichai on a rare US media tour in recent weeks to reassure that the company remained an industry leader on everything from search to maps to AI pioneering.

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Despite the headwinds, Pichai received a total compensation package worth more than $225 million in 2022, according to a regulatory filing posted last week.

Indicating that troubles are still not gone, Google-owned YouTube's advertising revenue dropped for the third quarter in a row, declining 2.6 percent year over year to $6.7 billion.

The struggles at YouTube came in the same quarter that its longtime CEO Susan Wojcicki stepped down after nine years, replaced by longtime executive Neal Mohan.

"Google exceeded both revenue and earnings expectations this quarter, but reasons for investor optimism are modest," said Insider Intelligence senior analyst Max Willens.

"More importantly, Google's ad business is under threat. YouTube revenues declining again, and Search and Other revenues rising less than 2 percent reflect the reality that Google's core business is facing the most serious challenges it has encountered in quite some time."

Despite the deeper-rooted problems, Alphabet’s share price has recovered well from the lows seen before January's layoff announcements and on Tuesday shot up by more than 4 percent in after-hours trading to $108.4.

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This was still well shy of the near $150 seen in 2021, when ad revenue was pouring in.

Source: AFP