Unexpected drop in YouTube's Q3 revenue leads to a crash in Alphabet shares

Instead of a 3% rise in revenue for YouTube as Wall Street analysts forecast, the streaming video site saw its gross drop by 1.9% on an annual basis during the third quarter. This, plus lower-than-expected top and bottom line figures, led the shares of Google parent Alphabet to plunge by $9.25 or 8.85% to $95.23 in Wednesday afternoon trading.

YouTube revenue was reported at $7.07 billion for the three months that ended at the end of September compared with the $7.21 billion recorded during the same quarter a year ago. Google Search's top line weighed in at a hefty $39.54 billion which was up 4.2% from the 37.93 billion brought in by Search over last year's third quarter.

Overall, Google's advertising revenue for the period was $54.48 billion, a gain of 2.5% from the $53.13 billion in advertising revenue collected by the company during 2021's third quarter. Google's Chief Business Officer Philipp Schindler said that spending on search ads for sectors like insurance, loans, mortgage, and cryptocurrencies had fallen during the quarter.

The cost to acquire traffic to Google sites rose slightly to $11.83 billion for the third quarter of 2022. Last year, this expense came to $11.50 billion and analysts expected Google to spend $12.38 billion over the three months.

Overall revenue for Alphabet rose 6.1% from $65.12 billion during the 2021 third quarter to $69.09 billion (Wall Street expected $70.58 billion). Third Quarter earnings per share were forecast on Wall Street to be $1.25 but came in at $1.06, down from the $1.40 reported for last year's Q3. Net income also declined $26.6% to $13.91 billion from the $18.94 billion reported during the same quarter last year.

Except for a quarter early during the pandemic era, this report reveals the slowest growth during a three-month period for Google since 2013. Google CEO Sundar Pichai says that he wants to make the company 20% more efficient which could result in job and product cuts. The headcount rose sharply to 186,779 full-time workers, up from 150,028 during the 2021 third quarter.

Alphabet's report doesn't bode well for some other earning reports to be released by other tech firms. Tomorrow, Apple will report its fiscal fourth quarter results after the market closes.