Alphabet Q1 2023 Report: Is the Company Losing Ground?

The number of users of ChatGPT, which was developed by OpenAI OpCo LLC, exceeded 100 million by February 2023. Such rapid growth was not expected, not even by the company itself. The chatbot is used as a search engine, but, according to its developer, the most current data available for this tool dates to 2021. This gave Alphabet Inc. (NASDAQ: GOOG) a little time to introduce a similar product into its search engine.
But in February 2023, Microsoft Corporation (NASDAQ: MSFT) which is OpenAI’s key partner announced the integration of ChatGPT into its Bing web browser. And it should be noted that AI technology now has access to the most up-to-date information to generate responses.
According to Similarweb analytics agency, queries on Bing increased by 25% from February to April 2023. Does this mean that Alphabet is losing ground in the search engine market? Let’s study the corporation’s Q1 2023 report.

Key takeaways from Alphabet’s quarterly report

Alphabet Inc. released its January-March 2023 results on 25 April. Compared with the statistics for the same period in 2022, revenue increased 2.6% to 69.8 billion USD, and net profit dropped 8.5% to 15.1 billion USD. Note that net income has been declining for the fourth quarter in a row. Let’s look at the reasons:

slowdown in advertising revenue growth due to a negative macroeconomic environment
increased spending on investments in cloud services, artificial intelligence, and research
increased added costs for compensation payments relating to a 6% reduction in staffing

Why YouTube revenue is declining

YouTube advertising revenue tumbled 2.6% to 6.7 billion USD. The figure has fallen for the third quarter in a row mostly due to reduced spending by advertisers amid recession fears. This trend could force video bloggers, whose income depends on monetisation on the site, to shift to other online resources for publishing their content and earning money.

Nevertheless, Alphabet Inc. reported the success of YouTube Shorts, with daily views reaching 50 billion in February this year. Note that this platform section for short videos was launched in 2022. It recently became available also on TV. The growth of YouTube Shorts can be positively affected by a complete ban on TikTok in the US.

Why Google Search revenue growth is slowing

Google Search revenue rose by a mere 1.9% to 40.4 billion USD. This segment’s revenue recorded a 24.28% increase in Q1 2022 while the increase in Q1 2021 was more – 30.11%, which may point to rising competition in the segment. It’s worthwhile being reminded of ChatGPT's popularity, the integration of this technology into Bing, and the increasing number of queries in the search engine developed by Microsoft Corporation in the past few months.

What growing Google Cloud revenue means

Alphabet Inc. cloud services quarterly revenue added 28% to 7.5 billion USD. The operating income of this segment reached 1 billion USD. It can be assumed that the corporation is successfully competing with the leaders in the cloud services market, such as Amazon.com Inc. (NASDAQ: AMZN), and Microsoft Corporation.

How Alphabet is optimising costs

Alphabet Inc. announced in January that it would be laying off 12,000 employees, and in April that it would make significant cuts in real estate, employee services, and equipment costs. At the same time, the corporation’s management approved a 70 billion USD stock buyback programme.

Alphabet and artificial intelligence

Alphabet Inc. unveiled Bard, its own AI-based chatbot on 6 February. The company hopes that it will compete with ChatGPT. It should be noted that this release seemed to have been done in haste as if the corporation’s management did not want to be outdone by ChatGPT in the generative AI race. It was revealed in late April that the team members responsible for developing and launching Bard insisted that it was not ready for a proper release as the chatbot often gave incorrect or unethical answers.

Google versus automatically generated content

Google’s Senior Search Analyst John Mueller said that content generated with automation tools and AI services would be treated by the search engine as spam. But when Mueller was asked how exactly the system distinguishes between AI-generated text and text written by humans, he did not give a clear-cut answer.
On the one hand, it can be assumed that this is Google’s way of trying to maintain the high quality and intrusiveness of information in search results and combat spam and manipulation. This would increase user confidence in this search engine and enhance its competitive advantage in the segment.

On the other hand, Google can face criticism and discontent from content creators who use AI technology to improve their productivity and creativity. This can lead to a decline in the loyalty of people and companies that collaborate with the corporation.

Summary

According to Similarweb, Google’s search engine can still boast great popularity among users. The number of search queries on Bing increased by 400 million from February to March 2023, while Google saw an increase of 8.4 billion.

Alphabet Inc.’s revenue growth slowed down, and net income dropped. This is probably attributed to a decline in advertiser spending due to economic uncertainty and recession concerns. The company is facing challenges from intense competition and government regulation, advances in the development of AI technology, and changing consumer behaviour. Such conditions force Alphabet Inc. to adapt to changing market conditions and seek new opportunities for growth and development.

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Alphabet Q1 2023 Report: Is the Company Losing Ground?

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