On Tuesday, Google’s parent Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) reported lower-than-expected earnings results. The decline in advertising revenues that led to a drop in YouTube’s revenues was hard to miss. This was a major disappointment for tech investors, as is clear from the 7% drop in GOOGL stock prices in extended trading, Tuesday.
YouTube ad revenues declined for the first time since Google started reporting the unit’s performance separately, driving the company’s fifth straight quarter of slowing revenue growth. This testifies that the broader market slowdown is now seeping into the resilient mega-cap companies.
The decline was not a complete surprise. In the second quarter earnings call, management mentioned that strong revenue from 2021 will create tough comps that will impact year-over-year ad-revenue growth rates throughout 2022. Moreover, Google also indicated a broader market slowdown during the call. Ruth Porat, CFO at Alphabet, said, “In YouTube and Network, the pullbacks in spend by some advertisers in the second quarter reflects uncertainty about a number of factors that are challenging to disaggregate.”
Moreover, a few months ago, Meta Platforms (NASDAQ:META) CEO Mark Zuckerberg said that the economy seems to have entered an “economic downturn that will have a broad impact on the digital advertising business.”
Is Google a Strong Buy?
Turning to Wall Street, the analyst consensus is bullish on the GOOGL stock, with a Strong Buy rating based on 25 unanimous Buy ratings. The average price target for Google stock is $141.24, indicating a 35% upside potential to current price levels.