Here’s what Alphabet CFO Ruth Porat is betting on as YouTube ad revenue slumps

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This year’s tech-stock slump continues as Google misses the mark on its latest earnings. But the tech giant is betting on the world’s pivot to a distributed workforce, hybrid work, and digital transformation, more than the next YouTube star, to help buoy future growth.

Alphabet, the parent company of Google and YouTube, reported a total of $69.1 billion in revenue in the third quarter that ended Sept. 30, a 6% increase from $65.12 billion at the same time last year. On average, analysts expected revenue to be $70.58 billion, according to Refinitiv data. YouTube advertising revenue declined. The company reported $7.07 billion in revenue for the quarter, compared to $7.2 billion in the third quarter of 2021.

Regarding Google Search, which is in the Google services segment, “we did see a pullback in spend by some advertisers in certain areas in search ads,” Philipp Schindler, SVP and chief business officer at Google, said during the company’s earnings call on Tuesday. “For example, in financial services, we saw a pullback in the insurance, loan, mortgage, and crypto subcategories. There’s no question we’re operating in an uncertain environment.”

The third quarter reflects, “healthy fundamental growth in search and momentum in cloud, while affected by foreign exchange,” Ruth Porat, CFO of Alphabet and Google said on the call. Google Cloud revenue was $6.9 billion for the quarter, up 38%, but had an operating loss of $699 million, Porat said. However, the revenue is more than Zacks Consensus Estimate for Q3 2022 of $6.7 billion. “Customers globally are adopting our products and services to digitally transform their businesses,” Porat said. There’s opportunity in the space as “businesses and governments are still in the early days of public cloud adoption,” she said.

The company was on a hiring spree in Q3, but will slow down some next year. Alphabet added 12,765 employees in the third quarter, of that more than 2,600 joined Google Cloud as part of the company’s acquisition of Mandiant, Porat said. “In the fourth quarter, we expect headcount additions will slow to less than half the number added in Q3,” she said. But the company will continue hiring for “critical roles,” focusing on engineering and technical talent, she said. Regarding CAPEX, the company will make big investments in tech infrastructure with servers as the largest components, Porat said.

Google may be trying to comfort investors about missing the mark by promoting the potential of investments in A.I. capabilities for YouTube, Google Search, and Google Cloud. But some experts are saying that’s a silver lining for tech investments. In a blog post on Tuesday, Lei Qiu, portfolio manager of disruptive innovation equities at the asset management firm AllianceBernstein, pointed to robots, the cloud, and the Internet of Things driving growth beyond this year’s tech-stock bust.

“Investors in technology stocks have been badly bruised,” Qiu writes. Like the MSCI World Index technology took a dive nearly 33% through September 30, she writes. But the “transformation of technology-enabled infrastructure” has become a must due to changes in consumer behavior.

Flexibility and efficiency for hybrid workforces, for example, requires shifting workloads to the cloud, using data-management tools, Qiu writes. That results in spending more on cloud infrastructure for agility and cybersecurity to safeguard the work environment, she writes. In addition, robots are being used across industries for efficiencies and cost savings. And, “humans and machines are also communicating in new ways via the Internet of Things,” Qiu writes. She concludes that this year’s technology sector declines shouldn’t deter equity investors.

Google is spending heavily on cloud. Now, they just need investors to jump on the bandwagon.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

“Fintech State of the Union,” a research study commissioned by Discover Global Network, and conducted by 451 Research, a part of S&P Global Market Intelligence, explores emerging trends in the fintech ecosystem, including open banking, embedded finance, and real-time payments. Open banking allows secure third-party payment services to access banking transactions from banks and financial institutions. Forty-four percent of fintechs surveyed said that open banking technology is “highly relevant” to their business, according to the report. And 68% of consumers like open banking because it results in faster credit approvals. The research also found that 63% of fintechs surveyed show a “strong interest” in partnering with a payment network to develop open banking solutions. The findings are based on a global survey of 4,037 consumers and 852 fintech vendors in VP, C-suite, and founder roles. 

Courtesy of Discover Global Network

Going deeper

A new report published by the nonprofit Forests & Finance Coalition finds that the world’s largest banks increased support for companies in the agriculture, forestry, and other land use sectors responsible for deforestation in 2021. “As the climate and biodiversity crisis intensifies, credit to forest-risk commodity companies increased over 60% between 2020 and 2021,” according to the report. The findings are based on an assessment of 200 of the largest banks and investors in global forest-risk commodities.

Leaderboard

Brad Nagel was named CFO at Electromed, Inc. (NYSE American: ELMD), an airway clearance technology provider, effective Nov. 14. Nagel brings to Electromed over 15 years of experience. Most recently, he held the position of divisional CFO of global lung health and visualization at Medtronic. In that role, he served as the primary business partner to the general manager and leadership team. Before that, Nagel held various roles of increasing responsibility in finance, sales operations and accounting at Medtronic, Target Corporation and TCF Bank.

Edward Smith was named CFO at Reunion Neuroscience Inc. (Nasdaq: REUN, TSX: REUN), a biopharmaceutical company, effective immediately. Smith has more than 20 years of financial management experience. Before joining Reunion, he was CFO and took public LAVA Therapeutics N.V., Marinus Pharmaceuticals, Inc., and PolyMedix, Inc. And before that, he was executive director of finance at InKine Pharmaceutical Company, Inc. Earlier in his career, Smith held various positions of increasing responsibility in public accounting, including in the audit practice at Deloitte & Touche, LLP.

Overheard

“I still think that we’re going to have job gains as we move into the end of this year, early next year. A lot of people are still looking at different jobs. We saw a lot of moving around over this last course of the year. People leaving jobs, getting better jobs.”

—U.S. Department of Labor Secretary Marty Walsh said in an interview at CNBC’s Work Summit on Tuesday that he doesn’t see the recent job gains reversing.