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Alphabet misses revenue targets due to YouTube’s underperformance, and ad sales are being pressured by inflation

Alphabet Inc., the parent company of Google, announced first-quarter revenue that fell short of analysts’ estimates, a rare failure for the internet giant due to sluggish ad sales in Europe and a poor showing by its YouTube video service. In extended trading, the shares fell by roughly 6%.

In addition, the business announced a $70 billion share repurchase program.

According to Alphabet Chief Financial Officer Ruth Porat, the crisis in Ukraine, which began during the quarter, had an “outsized impact” on YouTube income since the business ceased selling ads in Russia, and brand advertisers, notably in Europe, cut back on spending. She also mentioned that sales to direct-response marketers on YouTube were slowing and that changes to app store fees to satisfy competition concerns had wiped out subscription income gains.

Over the last two years, the world’s leading provider of search and video ads has benefited greatly from the transition to online commerce, but the conflict and the pandemic’s latest economic phase have brought new hurdles.

New European laws restricting ad targeting are likely to have hampered Google’s second-largest business line, its network system, which serves to advertise elsewhere on the web. Total sales in Europe climbed 19% year over year but fell 12% year over year in the fourth quarter.

Still, according to Brian Wieser, global president of business intelligence at ad agency GroupM, Google’s ad growth is solid. “On its own, Google accounts for a third of the industry. “They’re still increasing at around 20%,” he remarked. “It’s the expectations, not the company, that’s the problem.”

The company’s largest income generator, Google’s search advertising division, increased by 24% to $39.6 billion. Sales of cloud computing units surged by 44% to $5.82 billion. Both units outperformed expectations.

Alphabet’s Other Bets subsidiaries, which include self-driving vehicle startup Waymo and Verily, which attempts to cure various health challenges with technology, brought in $440 million in sales on $1.16 billion in losses, a significant increase over previous years.

The company’s net income was $16.4 billion, or $24.62 per share, compared to $17.9 billion, or $26.29 per share, a year ago. Analysts predicted a share price of $25.71 on average.

After closing at $2,373 in New York, Alphabet shares fell to a low of $2,207.79 in extended trading. This month, the stock had lost nearly 14% of its value.

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