Tech layoffs have been tough on everyone. However, it is harder to hear that tech companies have not been faring well and that the economy looks bleak. The latest to join this bandwagon is Google’s parent, Alphabet. The tech giant posted its Q4 earnings on February 2, and they fell short of estimates. The dismal Alphabet earnings has pushed Google to speed its artificial intelligence R&D.
The decline in profits is mainly a result of falling Google ad revenue. The company’s ad revenue fell from $61.2 billion in Q4 2021 to $59 billion in Q4 2022.
The fiscal results are for the quarter ending December 31, 2022, and Q4 consolidated revenues stood at $76 billion, up by 1% year-on-year. Pichai also revealed that the company will focus on its artificial intelligence (AI) capabilities in the coming months.
Alphabet Q4 Earnings and AI
After announcing massive layoffs, Google posted its fiscal results on Thursday. With the tech company missing both top and bottom lines, it was little surprise that Google stock fell by nearly 4% after hours.
According to Refinitiv, revenues were expected to hit or cross $76.53 billion against the actual $76.06 billion.
Alphabet declared that it expects to “incur employee severance and related charges of $1.9 billion to $2.3 billion” from the layoff of 12,000 people.
CFO Ruth Porat told CNBC that the search-engine leader will slow down hiring to deliver long-term profitability. She also stated that the slowdown in digital advertising significantly affected YouTube earnings.
The company is set to make advancements in the AI space, starting with creating a niche for its DeepMind AI research division. Earlier, the reports for this section was clubbed under “Other Bets” but moving forward it will be reflected as Alphabet’s corporate costs.
The Alphabet earnings show that the company has fallen behind on innovating its search-engine functionalities and the world is now betting against its dominance.
Sundar Pichai Gets a Salary Hike
Weeks before the tech company announced laying off nearly 12,000 employees, it awarded CEO Sundar Pichai a new equity award. The board mentioned that it recognized Pichai’s strong performance as CEO.
As per Reuters, Pichai is given stock awards every three years. The chief executive’s remuneration has been modified to increase the percentage of performance-based stock units (PSUs). Previously, it stood at 43% in 2019, but has now been modified to 60%.
In 2018, Pichai turned down equity-based compensation mentioning that his pay package at the time was justified.
AI Takes Center Stage
Google has taken note of the growing role of AI in search engines and has started taking steps to bring it front and center.
The Q4 Alphabet earnings press release noted “As AI is critical to delivering our mission of bringing our breakthrough innovations into the real world, beginning in January 2023, we will update our segment reporting relating to certain of Alphabet’s AI activities.”
Recently, Google has come under increased pressure to ramp up its search engine capabilities after the release of AI-based ChatGPT. Even Microsoft has plans to integrate AI into the Bing search engine.
According to CNBC, an internal memo showed that the company has asked one of its AI teams to prioritize working on a response to ChatGPT. Despite its errors, ChaptGPT has managed to amass a fan following with people experimenting with everything from writing code to asking philosophical questions. The emergence of the AI-based chatbot has investors investors that it might upend Google’s search-engine business.
Techjury estimates that AI-powered voice assistants will be 8 billion by 2023. The global AI market is expected to reach $1,581.70 billion by 2030.
Changing Regulations and Competition
In the past, Google has come under fire for its anti-competitive practices and been fined for trying to maintain a market monopoly.
A new report from the US government has now called for lawmakers to pay attention to Google and Apple’s anti-competitive behavior that harms consumers.
The US Department of Commerce’s National Telecommunications and Information Administration published its findings on the President’s order on competition involving Apple and Google on February 1. The report noted that both tech giants have made it difficult for competitors to find a foothold with its rigid policies.
The findings mention that both Android and iOS policies harm developers, leaving the customers vulnerable to high prices and a lack of innovation. The report also gave a list of recommendations to reduce the power of these companies and boost innovation.
Conclusion
In a statement on Q4 earnings, Pichai said, “We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet.”
But while Google’s Q4 earnings have been less-than-spectacular, it is clear that the company must find a way to thwart competition — in this case, AI-based products and services. The tech giant might also face probes by regulatory agencies over its monopoly in online advertising and penalties and policy changes will further impact its profits.
Furthermore, Google also needs to work on its policies and make room for innovation, as governments across the world take note of its anti-competitive behavior.
