Google ad revenue disappoints Alphabet shareholders.

• Although Alphabet reported better-than-expected revenue and profit for the fourth quarter, its ad revenue did not meet analysts' projections.
• In 2023, the company recorded $2.1 billion in severance and related charges due to workforce reductions from the previous year.
• In the past year, alphabet shares have experienced a 56% increase, excluding the after-hours decline.

On Tuesday, the company's ad revenue missed analysts' estimates, causing its shares to slide more than 6% in extended trading.

Here are the key numbers:

• The earnings per share were $1.64, higher than the $1.59 expected by LSEG, formerly known as Refinitiv.
• Revenue: $86.31 billion vs. $85.33 billion expected by LSEG.
• According to StreetAccount, the actual revenue of Google Cloud was $9.19 billion, which is higher than the expected revenue of $8.94 billion.
• According to StreetAccount, the actual revenue from YouTube ads was $9.2 billion, which is lower than the expected $9.21 billion.
• According to StreetAccount, the cost of acquiring traffic is $14.1 billion compared to $13.9 billion.

Alphabet reported its fastest quarter for revenue growth since early 2022, with sales climbing 13% from $76.05 billion a year earlier. However, ad revenue of $65.52 billion trailed analysts' estimates of $65.94 billion, according to StreetAccount.

Despite not meeting expectations, YouTube has still contributed to growth.

Despite the results being above estimates, investors were not satisfied and pushed the stock to new highs last week. Facebook's ad business is growing at a faster rate, while TikTok poses an ongoing competitive threat as younger users prefer to create short viral videos on the app.

Despite earlier struggles to keep up with competitors, Google Cloud has experienced significant growth, expanding by 26% in the fourth quarter compared to the same period last year. Additionally, the company has managed to turn a profit from its cloud business, which had been losing money for years. In the fourth quarter, operating income was $864 million, a significant improvement from the $186 million loss in the same quarter the previous year.

Sundar Pichai, CEO of Alphabet, is concentrating on increasing investments in artificial intelligence and integrating new generative AI technology into Google's core products. To achieve this, Pichai has stated that the company must make reductions in other areas, which may result in additional layoffs on top of the 12,000 cuts made last year, which accounted for approximately 6% of the company's full-time workforce.

Google CEO Sundar Pichai expressed satisfaction with the company's ongoing search strength and the growing contribution from YouTube and Cloud in Tuesday's press release. He noted that each of these areas is already benefiting from Google's AI investments and innovation.

Google unveiled its largest and most advanced AI model, Gemini, in December. The company intends to make Gemini available to customers via Google Cloud for use in their own applications.

Due to workforce reductions, the company recorded $2.1 billion in severance and related charges for 2023. Additionally, Google exited some offices, resulting in $1.2 billion in charges for the quarter and $1.8 billion for the year.

Ruth Porat, the Alphabet Chief Financial Officer, stated on the earnings call that severance-related expenses in the first quarter will amount to approximately $700 million.

In the fourth quarter, net income increased by 52% to $20.7 billion, or $1.64 per share, from $13.6 billion, or $1.05 per share, in the previous year. Additionally, the operating margin, which represents the profit remaining after deducting operational expenses, enlarged to 27% from 24%.

The revenue of Other Bets, comprising Waymo self-driving car business and Verily life sciences unit, increased from $226 million to $657 million, while its loss decreased from $1.24 billion to $863 million.

The stock market has experienced a 56% increase in the value of Alphabet shares in the past year, excluding the after-hours decline. Additionally, shares of and have reached new highs as investors continue to invest in technology stocks.

On Tuesday, Microsoft reported better-than-expected financials, but its stock price fell after the announcement. Meanwhile, Meta is set to release its results on Thursday.

— CNBC’s Jennifer Elias contributed to this report.

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