Alphabet properly preps its books for a downturn

NEW YORK, Oct 25 (Reuters Breakingviews) – Alphabet (GOOGL.O) is better prepared than its ad-dependent rivals. The parent of Google reported on Tuesday third-quarter revenue growth slowed to 6% year-over-year to $69 billion, the worst performance since the pandemic. Still, its revenue is more diversified, and it runs leaner than peers. For the company run by Sundar Pichai, a looming downturn will be a little less painful.

Google taps a greater variety of sources for dollars than Meta Platforms (META.O), Twitter (TWTR.N) or Snap (SNAP.N). It sells advertising for both search and video via YouTube, and those sites top Morgan Stanley’s list of criteria including engagement and reach for strength during an economic slide. Unlike Facebook, say, Google is more utilitarian than entertainment. So, in a downturn, its users – and corresponding advertisers – will be stickier. That shows up in Alphabet’s own results: Google’s search revenue for example rose 4%, while for YouTube, sales slipped 2%.

Still, it isn’t resting on its laurels – the business is also relatively lean. The average headcount at Alphabet increased 62% from 2019 to 2022 reckons Bernstein’s analysts. That’s less top heavy than Facebook’s owner or Snap, whose workforces more than doubled.

That explains why Alphabet’s net profit margins have held steady: In the third quarter of 2019 it was 17% versus 20% in the third quarter this year. Contrast that with Meta, whose net profit margins analysts estimate will fall 16 percentage points to 19%, according to Refinitiv. An economic downturn will hurt technology giants but not equally.

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CONTEXT NEWS

Alphabet on Oct. 25 reported that third-quarter revenue increased 6% to $69 billion, missing analyst estimates according to Refinitiv. Earnings declined 27% to $13.9 billion.

Shares of the Google parent fell approximately 6% in after-hours trading.

Editing by Lauren Silva Laughlin and Sharon Lam

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