Slowing ad sales, an antitrust suit, and ChatGPT on deck

Google parent Alphabet (GOOG, GOOGL) will report its Q4 earnings after the bell on Wednesday as investors and analysts look for signs that the broader digital advertising market has hit its bottom.

Here’s what Wall Street expects from the company, as compiled by Bloomberg, compared to how the company performed in the same period last year.

Alphabet had a 20-to-1 stock split in July 2022.

The company, like Meta (META) and Snap (SNAP), is working to overcome a slowdown in the digital advertising market. In Q3, the company missed analysts’ expectations on both revenue and earnings per share, as advertisers trimmed their budgets amid rising inflation and interest rates.

In an investor note, BofA Global Research analyst Justin Post said he expects to see both YouTube ad revenue and Google Cloud growth to decline quarter-over-quarter. According to the Post, BofA’s channel checks show that advertiser spending in Q4 was “soft” and that the first quarter of 2023 will be “sluggish.”

Alphabet’s results are its first since it laid off some 12,000 employees in January. CEO Sundar Pichai blamed the layoffs on Alphabet’s decision to staff up to meet the company’s demand during the pandemic. As people started venturing back into the real world and relied less on virtual options, though, Alphabet needed to cut staff.

Alphabet CEO Sundar Pichai announced the company was laying off 12,000 workers in January. (AP Photo/Eric Risberg)

This is also the first time Alphabet will report earnings since the Department of Justice (DOJ) filed an antitrust lawsuit against the tech giant over its advertising business. In its complaint, the DOJ says it wants to break up the company’s ad business, which it accuses of operating at the expense of smaller rivals and advertisers.

In a research note, Needham analyst Laura Martin wrote that she expects it to take 7 to 10 years to resolve the case, and that every business decision Alphabet makes in the interim will need to undergo internal legal review.

“This implies value destruction, in addition to legal expenses, regardless of the outcome,” she wrote.

The DOJ isn’t Alphabet’s only existential threat, though. In January, Microsoft (MSFT) announced that it is making a multi-year, multi-billion dollar investment in ChatGPT developer OpenAI. Microsoft is already talking about adding the company’s AI capabilities to its various cloud products, and if it can attach natural language responses to its Bing search engine, it could cut into Google Search’s market share.

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