The Corona crisis is generating more income than ever, but now the sluggish economy is hitting the big tech giants. Sluggish corporate advertising spending is wreaking havoc on Alphabet's balance sheet. Spotify also disappointed investors.
Disappointing numbers from Alphabet and Spotify fuel fears of a harsh winter for online advertising. Many investors had hoped, especially at Google's parent company Alphabet, that the Internet group would be able to withstand the burdens of the weakening economy thanks to its strong market position. Alphabet reportedly increased its quarterly revenue to $69.092 from $65.118 billion in the same period last year, but missed the analysts' forecast of $70.58 billion.
At the same time, the advertising revenue of the video platform YouTube shrank to 7.07 from 7.2 billion dollars. Net income of $1.06 per share also fell short of the market's expectation of $1.25. "This shows that the company is not immune to the challenges of the online advertising industry," said analyst Jesse Cohen of online brokerage Investing.com. Financial service providers in particular would have placed less advertising, said Alphabet CFO Ruth Porat. In addition, exchange rate effects would have reduced the result. These charges are expected to increase in the fourth quarter.
Similar to Alphabet, Spotify's weak advertising revenue and the strong dollar shattered the balance sheet. Added to this would be retrospective royalties payments to artists. In addition, company boss Daniel Ek referred to the new data protection settings on Apple devices, which make it more difficult for his company to distribute targeted advertising.
According to the music streaming service, the profit margin fell surprisingly sharply to 24.7 percent. The operating loss was 228 million euros. Analysts had only expected a minus of 168.6 million. The increase in the number of users by 23 to a total of 456 million and in group sales by 21 percent to three billion euros was higher than expected. Last week, the Snapchat operator Snap announced the lowest sales growth since the photo messenger service went public five years ago, also due to weakening advertising revenues.
On Wall Street, shares of Alphabet and Spotify each fell more than 7 percent in after-hours trading in response to the numbers. In their wake, the titles of the online photo pinboard Pinterest and the Facebook parent Meta gave in around four percent. Both are also heavily dependent on online advertising revenue. According to data provider Refinitiv, Meta will report a 5.5 percent drop in revenue to $27.406 billion and earnings of $1.89 per share on Wednesday.
