The company had fallen short of expectations for earnings per share, with net income dropping year-over-year (though heavily impacted by a near-$6 billion negative swing in the value of equity securities). And revenues were mainly in-line and rose across the board - but while Search, Google Network and Cloud all rose by 20% or more, the clear focus of attention was a dramatic slowdown in YouTube revenue growth against a very hot 2021 comparison.
That growth (of 14.4% to $6.9 billion) drew the bulk of analyst questions during the call. And Chief Financial Officer Ruth Porat noted that deceleration came alongside some industrywide advertising hiccups with the start of the Russia-Ukraine war.
"The most direct impact (of the war) is the fact that we suspended the vast majority of our commercial activities in Russia ... About 1% of Google revenues were from Russia in 2021, and that was primarily from advertising," she says. She adds that from the outset of the war there was a pullback in advertiser spend, "particularly on YouTube in Europe."
YouTube saw a big ramp in activity for YouTube Shorts - the company's answer to the short-form videos mastered by rival TikTok (BDNCE) - and Porat acknowledged that could provide a "slight headwind" to revenue growth as Shorts takes up an increasing part of the ad mix.
"We are testing monetization on Shorts, and early advertiser feedback and results are encouraging," she says. "And the team is focused on closing the gap with traditional YouTube ads over time. So we're excited about the new opportunities with Shorts, but a slight headwind."
CEO Sundar Pichai notes YouTube Shorts now averages over 30 billion daily views, up more than four times from a year ago.
Operating margins in the quarter remained flat at 30%, and Porat offered some color on what to expect going forward there: "We continue to expect a meaningful increase in (capital expenditures) in 2022 versus last year, for the balance of 2022. The increase will be particularly reflected in investments in technical infrastructure globally, with servers as the largest component."
Pressed on how the margin stayed strong despite an ever-increasing headcount, she elaborated that the plan on investment is aggressive, "both ongoing hiring at a rapid clip as well as ongoing investment in technical infrastructure." As for margins, the company's focused on long-term value creation and she notes last year margins benefited from substantial revenue growth while expense growth ramped more gradually.
Next up on big Alphabet catalysts is its Google I/O developer conference due in two weeks, and Pichai noted attendees would get some detail on a recent acquisition. "Across the board I'm excited because there is a lot of product innovation ... a lot to look forward to," he says when asked about what aspects most excite him. "Cybersecurity has been a particular focus ... we obviously are excited about our acquisition of Mandiant (MNDT)."
In Nielsen's recent look at monthly television usage share, YouTube benefited from the overall bump that streaming is getting: Its share of usage rose to 6% in March from the prior month's 5.7%.