Google parent Alphabet reports 14% drop in Q2 profit as it misses sales forecast

Net profit at California company drops to about $16bn in three months to end of June

A bicycle path along Google's new Bay View campus. EPA

Workstations in Google's new Bay View campus building. EPA

Sitting area at Google's Campfire Corner in Google's new Bay View campus. EPA

Sitting area at Google's Campfire Corner in Google's new Bay View campus building. EPA

Interior view in Google's new Bay View campus building. EPA

Interior view of Google's Campfire Corner in Google's new Bay View campus building. EPA

Interior view in Google's new Bay View campus building. EPA

An exterior view of building BV200 and Google shared bicycles during a tour of Google's new Bay View Campus. Reuters

A seating area in Google's new Bay View campus building. EPA

Google announced the opening of its new Bay View campus in Silicon Valley, representing the company's first time developing its own major campus. EPA

Art work in Google's new Bay View campus. EPA

An Office directory in Google's new Bay View campus. EPA

Interior and ceiling view of BV200, Google's new Bay View campus building. EPA

The Google bicycle Pedal Park inside Google's new Bay View campus building. EPA

Binary code and art work on the window of Google's new Bay View campus. EPA

The side of Google's new Bay View campus building. EPA

An outdoor weight room in front of Google's new Bay View campus. EPA

Binary code on the window of Google's new Bay View campus. EPA

The Google logo in front of Google's Bay View Building. EPA

An interior view of BV200, Google's new Bay View campus. EPA

An Interior view of BV200, Google's new Bay View campus building. EPA

A Google Android bot in the lobby of BV100, Google's new Bay View campus. EPA

The Bay View campus was designed by architects Bjarke Ingels Group (BIG) and Heatherwick Studio, as well as Google's design and engineering teams and spans 42 acres adjacent to the open space, two office buildings, and 1,000-person event centre. EPA

A coffee table made out of a wood stump in the sitting area at BV200, Google's new Bay View campus. EPA

Google employees in the cafeteria area in Mountain View, California. EPA

A Google employee in the cafeteria area in Mountain View, California. EPA

A worker inside Google's new Bay View campus in Mountain View, California. Bloomberg

A seating area inside Google's new Bay View campus. Bloomberg

Inside Google's new Bay View campus in Mountain View, California. Bloomberg

Workers inside Google's new Bay View campus. Bloomberg

A mural inside Google's new Bay View campus in Mountain View, California. Bloomberg

Inside Google's new Bay View campus in Mountain View, California. Bloomberg

Workers in one of the many dining areas inside Google's new Bay View campus in Mountain View, California. Bloomberg

Inside Google's new Bay View campus in Mountain View, California. Bloomberg

Desks inside Google's new Bay View campus. Bloomberg

One of nine pieces of art created by Bay Area artists for the campus. Reuters

Alphabet, the world's largest provider of search and video ads, on Tuesday reported a 14 per cent drop in second-quarter net profit on an annual basis, as the company missed the analysts' sales expectations.

Net profit at Google's parent company dropped to about $16 billion in the three months to the end of June, more than $2.5bn less than the same period in 2021. Net profit on a quarterly basis fell about 2.6 per cent.

Revenue during the period rose 13 per cent annually to $69.7bn against expectations of about $70bn.

“In the second quarter, our performance was driven by search and cloud [businesses] … the investments we have made over the years in AI [artificial intelligence] and computing are helping to make our services particularly valuable for consumers and highly effective for businesses of all sizes” Alphabet’s chief executive Sundar Pichai said.

“As we sharpen our focus, we will continue to invest responsibly in deep computer science for the long term.”

Alphabet stock rose nearly 2.3 per cent to $107.4 a share in after-hours trading on Tuesday. Following the moves of Apple and Tesla in the past couple of years, the company carried out a 20-for-1 stock split on July 15.

Alphabet, which employs 174,014 people globally, earned nearly 47 per cent of its second-quarter revenue or more than $32.7bn from the US market. In Europe, the Middle East and Africa, the company earned $20.5bn, or 29.5 per cent of its total sales.

In the last quarter, Alphabet’s operating income remained flat at about $19.5bn. Its earnings per share dropped 11 per cent yearly to $1.21, missing analysts’ estimates of $1.28.

Google services business — which includes advertisements, Android, Chrome, hardware, Maps, Search, Google Play and YouTube — accounted for more than 90 per cent of the company’s total sales. It added $62.8bn to overall revenue, almost 10.1 per cent more than the second quarter of 2021.

Google’s advertising revenue from Search, YouTube and other businesses increased 11.5 per cent yearly to nearly $56.3bn in the second quarter.

The total revenue from the cloud business grew an annual 35.6 per cent to about $6.3bn in the April-June period.

Google Cloud includes the company’s infrastructure and data analytics platforms, collaboration tools and other services for enterprise customers. It generates revenue mainly from fees received for cloud platform services and workspace collaboration tools.

Alphabet said its operating loss in the cloud segment reached $858 million during the quarter. It expanded from the second quarter of last year, when the division’s loss was $591m.

The California-based company’s operating loss from other bets, or subsidiaries, increased more than 20 per cent yearly to about $1.7bn.

Other bets are derived mainly through the sale of internet offerings, as well as licensing and research and development services. This includes Alphabet’s X lab, self-driving unit Waymo and other non-Google companies.

Alphabet spent more than $9.8bn on research and development, nearly 14.1 per cent of its total sales in the second quarter. This was 28.2 per cent more than the R&D expenditure of the same period in 2021.

“Our consistent investments to support long-term growth are reflected in our solid performance in the second quarter … we are focused on responsible capital allocation in support of our growth opportunities,” Alphabet’s chief financial officer Ruth Porat said.

YouTube added more than $7.3bn to Alphabet’s revenue, surging more than 4.8 per cent annually, almost matching streaming service company Netflix’s second-quarter revenue of $7.9bn.

Google’s TAC (total acquisition costs) stood at $12.2bn, up 11.8 per cent on an annual basis, against analysts’ expectations of $12.4bn.

TACs are payments that search companies make to affiliates and online companies for bringing traffic to their websites. It is a major source of expenses for companies such as Google and Yahoo.

Alphabet’s total cash, cash equivalents and marketable securities reached almost $125bn at the end of June, from $139.6bn at the end of last year.

Google will launch its new budget smartphone — Pixel 6a — this week as it seeks to increase its market share in a space currently ruled by rivals Apple and Samsung. First announced at the I/O developer conference in May, the new phone, priced at $449, will be available on shelves on Thursday.