Google problems lead analysts to point fingers at YouTube

Alphabet Inc., Google’s parent company, is on firmer ground than most online advertising companies, but YouTube is a big question mark.

These are two important takeaways from Wall Street analysts after leading digital ad firm GOOGL,
-3.67%

GOOG,
-3.75%
reported lower-than-expected sales and profits. The failure was attributed largely to YouTube’s underperformance in Europe amid conflict in Ukraine and against mounting pressure from TikTok and Walt Disney Co.’s streaming services DIS,
-0.48%,
Apple Inc.AAPL,
-0.15%,
Netflix Inc. NFLX,
-4.97%,
AT&T Inc.T,
-1.19%
and others.

Alphabet shares were down 4% late Wednesday afternoon.

Read more: Alphabet sales and earnings just below estimates, shares tumble

YouTube’s 14% revenue growth to $6.9 billion was its third straight quarter of slower-than-expected growth and likely represents the smallest year-over-year increase since the blighted second quarter of 2020. pandemic.

YouTube’s “surprisingly weak” performance prompted Mizuho Securities analyst James Lee on Wednesday to cut its fiscal year 2024 EBITDA for Alphabet by 3% to $158 billion and cut its price target to $3,500 from $3,600. Lee maintains a buy on the stock.

“Over the past quarter, ever since Meta raised competitive concerns related to the rise of TikTok, the investment community has been concerned that YouTube’s mobile product could suffer the same fate,” Michael Nathanson of MoffettNathanson in a note that maintained a buy rating on Alphabet shares with a price target of $3,100.

“The tone of [earnings conference] call [on Tuesday] was mixed, with Alphabet impacted by the suspension of activities in Russia (1% of 2021 sales), reduced advertising spend in Europe, lower direct response trends on YouTube and the negative impact of [foreign exchange]Monness Crespi Hardt’s Brian White said in a note on Wednesday that cut Alphabet’s price target to $3,500 from $3,850.

Alphabet’s less than stellar results bode ill for Meta Platforms Inc. FB,
-3.32%,
which is seen as far more vulnerable to the same economic hurdles that have already plagued Snap Inc. SNAP,
-5.58%
In his previous earnings report, Meta CFO David Wehner said that iOS 14.5’s iOS 14.5 Apple Identifier for Advertisers (IDFA), which requires app makers to ask consumers to authorize their follow-up, will cost Meta around $10 billion in 2022. In addition, Wehner expressed concern about future versions of iOS and regulatory issues in the United States and abroad.

Read more: Facebook’s meh year ‘could get better…it just doesn’t’

By comparison, Alphabet’s problems seem insignificant. YouTube aside, Piper Sandler’s Thomas Champion was buoyed by search innovation and Google Cloud’s performance, which soared 44% to $5.8 billion.

Still, Tuesday’s not-so-sparkling numbers reflect a tech industry that could endure a tough 2022 marred by a gauntlet of supply chain constraints, inflation and Ukraine on fire.

“In ‘The Dark Days of Tech,’ even Google is not immune to countless industry headwinds,” Bernstein analyst Mark Shmulik said in a note Wednesday. “The cracks started a few quarters ago, but investors were happy to gloss over them given the continued strength of the research.”

Alphabet shares are now down more than 20% on the year, while the S&P 500 SPX index,
+0.21%
fell 12.4%.

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