UK Markets closed

YouTube wipes $7.6bn off owner Alphabet

youtube logo - Lucy Nicholson/Reuters
youtube logo - Lucy Nicholson/Reuters

Google’s parent company suffered a sharp fall in its share price after revealing the first ever decline in advertising revenues at its YouTube video streaming service.

YouTube ad sales fell 1.9pc to $7.1bn (£6.2bn) in the three months to 30 September, compared to a year earlier, in the latest sign of a slowdown in the global economy.

Alphabet, the owner of YouTube and Google, had been expected to report around $71bn (£61.9bn) in overall revenues for the period, or growth of around 12pc - but instead sales were $69.1bn. Profits of $13.9bn were also below what had been expected.

Shares fell 5.7pc in after-hours trading immediately after the results were unveiled, wiping around $7.6bn off one of the world’s biggest businesses.

It came as Microsoft revealed a slowdown in sales in its cloud computing arm, and the music streaming service Spotify announced that advertising revenue was growing more slowly than expected.

Sundar Pichai, Alphabet’s chief executive, said: “Financial results for the third quarter reflect healthy fundamental growth in search and momentum in cloud, while affected by foreign exchange. We’re working to realign resources to fuel our highest growth priorities.”

Alphabet’s share price has fallen 28pc since January, broadly tracking the wider technology markets, which have seen a steady sell-off during the year.

The company briefly dipped last week after Snapchat’s parent company Snap Inc reported slower-than-expected growth, triggering a 25pc crash in its own price during after-hours trading.

Microsoft posted overall sales of $50.1bn, comfortably above market expectations of $49.6bn. However, the slowdown in its increasingly important cloud computing division triggered a 2pc dip in the company’s share price.

Microsoft Azure, the cloud business, grew by 35pc year-on-year whereas analysts had expected to see growth of 40pc as the business world continues its shift to cloud computing.

The Redmond, Washington DC-headquartered company is also contending with the fallout of a global slowdown in PC sales, which are firmly linked to the company’s Windows computer operating system. Gartner figures show PC sales dropped 19.5pc during the past three months, the steepest decline ever tracked by the tech consulting company.

Microsoft’s market value stood at $1.87 trillion on Tuesday evening, a 27.5pc decrease from its $2.58 trillion all-time high in November 2021.

Microsoft’s share price has tracked the general slump in tech stocks, declining from December 2021’s $334.75 (£291.81) down to Tuesday’s closing price of $250 (£217), a decrease of just over a quarter.

The financial health of two of the most influential US tech companies is seen as a bellwether for the broader US economy, which has seen increasing storm clouds gather during 2022 amid fears of recession fuelled in part by rising inflation, the strength of the dollar and slowing business spending.

In a sign of consumer spending holding up, Spotify reported sales of more than €3bn (£2.6bn) between July and September, with the number of average monthly users coming in at 456m, beating analyst estimates.

The company also predicted in July it would add another six million premium subscribers during the following three months, a target it beat by one million.

However, the Stockholm-based company warned that challenging economic conditions led to slower than expected growth in advertising revenue.

Spotify said third-quarter profit margins were less than it had expected, citing “some softness in advertising”, currency fluctuations and retroactive royalty payments to songwriters and music publishers.

Its net loss of €228m came in above its own prediction of €218m. Shares fell 4pc in after-market trading.