Google Ad Revenue Expected to Drop for Second Straight Quarter

Alphabet Inc., Google’s parent company, is expected to report $53.7 billion in ad revenue for the first quarter, a drop of 1.8% from the same period last year, according to the consensus estimate from analysts surveyed by FactSet. That would be the third drop in ad sales since Google became a public company in 2004, and the second consecutive quarterly decline following a 3.6% drop in the fourth quarter.

The online advertising market has remained wobbly as companies respond to an uncertain economic outlook. Last week, Facebook parent Meta Platforms Inc. Chief Executive Mark Zuckerberg told employees to expect a slower pace of hiring following the company’s latest rounds of layoffs.

Google is trying to jump-start growth during a period of heightened competition in AI, a technology that helps power the company’s search ads business. Google combined its two main AI research groups into a unit called Google DeepMind last week, a move it said would significantly accelerate research.

Google also plans to add conversational AI features to its flagship search engine, following a similar move by rival Microsoft Corp., CEO Sundar Pichai said in an interview with The Wall Street Journal this month.

Alphabet’s total revenue is expected to increase by 1.3% from last year to $68.9 billion in the first quarter, aided by continued growth in the company’s cloud-computing unit. The company is expected to report operating income of $16.4 billion in the first quarter, a decrease of 18% from the same period last year.

Google’s video platform YouTube is expected to report $6.6 billion of ads revenue in the first quarter, a decrease of 4% from the previous year and the third straight quarterly drop in sales. YouTube typically attracts a large amount of so-called brand advertising, an area that is quicker to fall off in times of uncertainty compared with search advertising, which usually has well-defined performance targets.

Sales in Google’s cloud-computing division are expected to increase 28% from the same period last year to $7.5 billion in the first quarter, a slower pace of growth compared with the fourth quarter.

Google, which announced the largest layoffs in company history in January, has recently looked to further slash expenses. Finance chief Ruth Porat told employees last month to expect additional cost cuts this year in areas ranging from cafeteria hours to the company’s use of internal servers.

In the interview with the Journal, Mr. Pichai said Google had not yet reached its productivity targets and declined to directly address the possibility of a second round of layoffs.

Mr. Pichai received $226 million in total compensation last year, including a triannual stock grant valued at $210 million. Alphabet said more of the grant would depend on stock performance over time compared with the previous compensation package awarded in 2019.

Shares in Alphabet have risen 20% since the beginning of the year, outpacing the tech-heavy Nasdaq Composite Index.