Is Google Losing Search Momentum To AI? Analysts Weigh In As Management Blames Currency Headwinds, FIFA World Cup

(MENAFN- AsiaNet News)

• “Google Search & other” revenue grew at 12% in Q3, compared to the 17% growth pace in the preceding Q2. 
• Alphabet attributed the slowing rate to foreign exchange rates and one-off ad spend dips in the Asia-Pacific market.
• Retail sentiment for GOOGL shifted to 'extremely bullish' from 'bullish.'

Alphabet Inc. (GOOGL) shares tumbled 10% in overnight trading late on Wednesday after it reported weakness in its core advertising and search businesses alongside spending on AI development, with its third-quarter revenue and profit missing Wall Street expectations.

The figures called into question its mainstay services in the AI era and overshadowed a doubling of sales for Google Cloud. 

Search, Ad Growth Slows

“Google Search & other” revenue slowed, growing at 12% to $63.3 billion, compared to the 17% growth pace in the preceding second quarter. Overall advertising sales rose 10.6% to $82.01 billion, compared to 14.4% in Q2.

Chief Business Officer Philipp Schindler attributed the slowdown to foreign exchange rates and one-off dips in advertising spending in Asia-Pacific among advertisers affected by the EU's elimination of its de minimis exemption. He also added that Q2 had been unusually strong due to advertising linked to the FIFA World Cup.

“When you look at the change in growth rate from Q2 to Q3, there were a few drivers here. So first, there was FX. It was the single largest driver of Search deceleration relative to Q2. Second, there were vertical-specific dynamics. In retail, some of our APAC advertisers were impacted by the EU eliminating its de minimis exemption,” Schindler said.

Also,“spend normalized after an unseasonably strong Q2, driven by the FIFA World Cup, which had more matches and therefore, more advertising budgets allocated in June than actually in July."

Schindler also flagged that while users are increasingly using Google's AI-powered search experience, AI Mode, the system has fewer baked-in ads and therefore makes less money. 

Analysts Weigh In

“Google Search had a tough September quarter and they're not out of the woods yet,” Deepwater Asset Management's Gene Munster said in an X post. 

“The pressure point is what is going on in search growth,” he said, adding that the 12% growth was below expectations and tougher comparisons would again weigh on December quarter growth.“CFO says search will be impacted in December by a tough comp. The Street is at 13.5% now. My guess is the Street will land around 11%,” Munster said.

“The secular decline of Google Search has begun,” said "Key Context" newsletter author Tae Kim in an X post.

Retail View On GOOGL

On Stocktwits, retail sentiment for GOOGL shifted from 'extremely bullish' to 'bullish' the previous day, with the ticker trending number two at the time of writing. 

“$GOOGL oh I'm buying more and more of this,” said a trader, while another called the stock drop a“huge overreaction.”“We're talking about Google here; it's not going anywhere. Just buy and be patient,” said a third.

In the third quarter, Alphabet's total revenue rose 25% to $127.6 billion, with cloud sales rising a record 103% to $30.71 billion. As of the last close, GOOGL stock was up 4% year to date.

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