Observers expected such a decline in Alphabet’s revenue as the world comes out of the Coronavirus crisis and shutdowns. This has caused a significant drop in demand for some of the company’s largest revenue generating services, like YouTube, because people are no longer stuck at home watching olive streaming. And Google is also seeing new competition from services like TikTok which also offer all manner of original content, albeit in short videos.
Alphabet reported a net profit of just $16.44 billion for the first quarter of 2022. That may seem like a fortune to everyday people, but it is down from the same period of 2021 which saw profits of $17.93 billion. That is an 8.3 % decline in profits. Such a large decline constitutes a major crisis for any company, even one as large as Alphabet with the resources to weather a temporary storm.
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The Alphabet profits for Q1 came to $24.62 per share, which was lower than the expected $25.76 per share. The company’s revenue rose to $68.01 billion, a 23% increase. But this was still less than what was expected. But more importantly, if revenue went up then the company’s spending must have also sharply increased if its profits went down. The company $1.07 billion loss from the value of its investments and the revelations led to a 4% decline in its stock’s value.
But the stock market has been down overall lately and the entire NASDAQ dropped 4%, hitting a low for 2022. So Alphabet is not alone. The slide in the stock markets is linked to current problems with inflation caused by both the continued supply chain disruptions that resulted from the Covid crisis as well as the war in Ukraine. Western sanctions on Russia have pushed up the price of oil which drives up prices everywhere. And the current worldwide instability caused by the Ukraine crisis may have investors scared and selling the stock for cash.
Then there is also the intention of the U.S. Federal Reserve to raise interest rates. Interest rates and stock markets are negatively correlated: when one is up, the other is down. When rates go up, bonds of all kinds become a more attractive investment and so people transfer money from stocks to bonds. Alphabet is not immune from any of this, no matter how huge it may be.