Alphabet Earnings Show Slowing Sales Growth on Digital-Ad Tumult

Google parent alphabet Inc.

GOOG -3.04%

posted slower revenue growth as global economic turmoil disrupted digital advertising spending.

The company said first-quarter revenue grew 23% from the same period a year ago, the lowest rate for the tech giant since late 2020. In the meantime, the company saw a period of massive revenue growth as both small and large companies in the advertising market trying to win over customers who spent the early period of the pandemic in their homes. The company’s revenue increased by 41% last year.

Rising inflation, supply chain disruptions, Russia’s War on Ukraine and other factors have weighed on the economic outlook and, analysts say, on companies’ appetites to spend on advertising. snap Inc.

said last week that pressure affected its financial results in its most recent quarter and could dent the ad market going forward.

Russia’s attack on its neighbor, which launched in the first quarter, had “an inordinate impact on YouTube ads compared to the rest of Google,” Chief Financial Officer Ruth Porat said during an earnings call. That was due to both the cessation of the vast majority of commercial activity in the region and a related reduction in spending, mainly by brand advertisers in Europe, she said.

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Alphabet suspended some operations in Russia because the Kremlin targeted Western companies that curtailed a number of local government-affiliated broadcasters.

Google’s search ads — often more closely related to specific customer purchasing decisions than broader brand awareness campaigns — were less impacted by broader economic concerns. An uptick in travel as pandemic restrictions continued to ease helped support the company’s revenue growth, analysts said.

Google Chief Business Officer Philipp Schindler said “people are seemingly on the move again.” The number of travel searches in the quarter was higher than what the company had seen in the pre-pandemic first quarter of 2019, he said.

Alphabet reported revenue of $68 billion in its first three months, meeting Wall Street expectations. Net income, weighed down by accounting factors related to some investments, fell 8.3% to $16.4 billion, below the consensus estimate of analysts polled by FactSet.

Shares in the company closed more than 3% on Tuesday and retreated further after the results.

Ms. Porat said some of the issues that weighed on the first quarter’s results, including accelerated growth rates from a year ago and the suspension of operations in Russia, would persist into the current quarter.

YouTube, the largest video destination on the web, felt some of the sting from the ad market turmoil. It contributed $6.87 billion to first-quarter revenue and lagged about $600 million behind Wall Street expectations. Alphabet has ramped up spending on YouTube to maintain its lead in video by funding a TikTok alternative, YouTube Shorts, and adding live shopping.

The Shorts feature, Chief Executive Sundar Pichai said, had grown to more than 30 billion daily views, or four times as much as a year earlier. The focus for the company was on developing and rolling out the feature. Money will be made later.

Alphabet reported revenue growth in its cloud computing business, where it is trying to catch up with Amazon

com Inc. and Microsoft Corp.

The cloud business remains a heavy investment area for the company and Google Cloud Services remains unprofitable.

Last month, Alphabet said it planned to spend nearly $5.4 billion on cybersecurity firm Mandiant. to buy Inc.

to better automate cyber defenses by injecting specialized intelligence into one of the world’s largest cloud-based tools platforms.

Cybersecurity investments have become something of an arms race between cloud service providers, with an outbreak of ransomware and other attacks raising customer concerns about data security. Microsoft, which also reported quarterly results on Tuesday, said revenue and profits rose as demand for its cloud services and software products continued to rise, with the pandemic spurring more remote work.

Revenue for Google Cloud grew about 44% year-over-year to $5.8 billion, generating an operating loss of $931 million. Microsoft said in its earnings that sales for Azure and its other cloud services are up 46% from the same quarter a year ago. Amazon will announce quarterly results on Thursday.

Alphabet also said it would buy back up to an additional $70 billion of some of its shares.

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write to Meghan Bobrowsky at Meghan.Bobrowsky@wsj.com

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