Google search revenue rises 2%, slight dip in total ad revenue

YouTube revenue also fell almost 3% YoY.

Alphabet Inc., Google’s parent company, reported lower advertising revenue in the first quarter of 2023 compared to the year-earlier period.

A 2% gain in search revenue was offset by declining revenue for YouTube ads (-2.6%) and Google’s advertising network (-8.3%).

Sundar Pichai. Google CEO Sundar Pichai plans to carefully and deliberately incorporate generative AI advances into Google Search, focusing on data-driven improvements and maintaining high standards of quality.

YouTube experienced significant growth in 2022, with YouTube Shorts being particularly popular among creators. The platform introduced updates to YouTube Premium, offering enhanced features to subscribers. Additionally, YouTube TV and YouTube Primetime channels continue to gain momentum, with the introduction of NFL Sunday Ticket pricing expected to boost subscriptions and create new opportunities for creators.

Introducing Bard. Pichai explained that Bard, a complementary product to Google Search, will incorporate LLM experiences more natively into search. The technology is expected to improve results in categories with no definitive answers and enhance user guidance across various query categories.

Travel goals and brand deals. In March, Google launched PMax for Travel Goals, which has already shown positive results for businesses. More AI features are expected to be announced at Google Marketing Live in May. The company’s focus on retail is centered on three pillars: making Google integral to shopping journeys, encouraging more merchants to participate in free listings and ads experiences, and enhancing retail performance with effective ads products.

Early testing. Caraway, a direct-to-consumer cookware brand, utilized target ROAS, uncapped budgets, and PMax to optimize its Q4 Black Friday campaign, resulting in a 46% increase in revenue and a 31% jump in ROAS. Google also introduced store sales reporting and bidding in PMax for store goals to help omni-focused retailers optimize both online and in-store conversions.

YouTube shopping. Shopping on YouTube is in its early stages, with over 100,000 creators, artists, and brands connecting their stores to their YouTube channels to sell products. Google also announced a partnership with Mercedes-Benz to bring Google Maps and YouTube into future vehicles with the next-gen MBOS operating system, while also providing AI and data cloud capabilities for advancing autonomous driving efforts and enhancing the customer experience.

Ruth Porat. YouTube advertising was virtually flat compared to the fourth quarter of 2022, which the company interprets as a positive sign, according to Chief Financial Officer Ruth Porat. She described the meaningful shortfall at its ad network business as an “ongoing pullback.” Total Acquisition Costs (TAC) amounted to $11.7 billion, a 2% decrease, mainly due to a shift between search and Network.

Google Services’ operating income was $21.7 billion, down 1%, with an operating margin of 35%. The number of employees at the end of Q1 includes most of those affected by the workforce reduction announced in January. The company plans to continue hiring engineering and technical talent, according to Porat.

Why we care. Even Google can’t defy gravity. Its declining revenue is a sure indication of the downturn in the economy. Until the economy turns, don’t expect Google to post gains anything beyond ho-hum gains in advertising sales. We can’t see a catalyst to make it happen.

Google had nearly 191,00 employees at the end of the first quarter, 27,000 more than March 2022. The company said it has nearly completed the layoffs announced earlier this year. Hiring will slow in the future, but Google still plans to hire engineering and technical talent.

Additional reporting in this story by Chris Elwell.