After disappointing earnings in Q3 2022, how will Alphabet “realign resources” at Google and YouTube?

A meager earnings report for the third quarter of 2022 has sent Alphabet stock sliding. The parent company of Google missed several financial targets, with both its search business and YouTube’s ad unit falling short of projections.

In total, Alphabet reported quarterly revenue of $69.1 billion, which led to a three-month profit of $13.9 billion. The revenue figure was a slight increase over the corresponding number from 2021, but profit fell 27% year-over-year. Both of those indicators failed to meet analyst projections. The revenue total fell short by $1.9 billion, and profit missed its mark by $3 billion.

Alphabet’s Q3 malaise included some disappointing results at divisions that have historically been some of Google’s most dependable earners. The company’s search ad business grew four percent and reached $39.5 billion, but analysts were expecting that sector to produce $41 billion in sales. YouTube’s ads didn’t fare better. In fact, their revenue fell 2% year-over-year to $7.07 billion, even though analysts predicted a slight increase.

Both of those ad businesses have been impacted by stiff competition from TikTok. The short-form video app has presented a major obstacle for Google’s search engine, since many young consumers use TikTok to look up restaurants, directions, movies, and much more. In response to that challenge, Google has reimagined its landing pages to make some search results more visual and interactive.

TikTok’s pressure on YouTube has caused the latter company to introduce new forms of monetization for its vertical video platform. YouTube Shorts ads will become widespread in 2023, as announced during an event last month.

Alphabet is also dealing with an overall economic decline, which hurt its bottom line last quarter and remained an issue during Q3. Compared to a year ago, advertisers in sectors like insurance, loans, mortgages, gaming, and crypto have spent less on YouTube advertising. That contrast makes Alphabet’s financials look particularly grim.

“The growth in our advertising revenues was also impacted by lapping last year’s elevated growth levels and the challenging macro climate,” Alphabet CEO Sundar Pichai said during the latest earnings call. Alpahbet CFO Ruth Porat added that the company would “realign resources to fuel our highest growth priorities.”

Translation: There’s tough sledding ahead for a tech industry titan, and investors are feeling shaky. Alphabet stock dropped as much as 8% after news of the company’s Q3 earnings went live.

Though Google and YouTube will be forced into strategic shifts, it’s unclear whether that transition will include a large number of layoffs. Alphabet added more than 12,000 workers during Q3 and now has 186,779 employees in all.