Alphabet shares experienced a more than 5% drop in after-hours trading on Tuesday due to the tech giant’s shortfall in key advertising sectors, despite narrowly surpassing overall revenue estimates for the fourth quarter of 2023.

Google’s parent company disclosed that advertising revenue fell short of forecasts at $65.52 billion compared to $65.8 billion, but the overall revenue exceeded expectations at $86.31 billion versus $85.36 billion. This marked a 13% increase from the previous year.

The chief financial officer of Alphabet described the company’s results as “very strong,” emphasizing the surpassing of overall revenue expectations. “We remain committed to permanently restructuring our cost base while making investments to support growth opportunities,” she stated.

The response to the report was subdued after Google’s parent company laid off 1,000 employees in January. CEO Sundar Pichai announced at the end of the month that the company will refocus on “investing in key priorities,” particularly in the artificial intelligence elements integrated into Google’s flagship products, in 2024, and hinted at further job cuts.

Investors expressed encouragement Analysts believe that the recent job cuts may reflect prudent cost-cutting efforts amidst rising interest rates. However, the impact of the layoffs is evident, with Porat stating that severance pay in the first quarter of 2024 is expected to be $700 million. Alphabet recorded $2.1 billion in severance-related expenses and $1.8 billion in severance-related expenses in 2023, freeing up office space.

Despite the overall advertising downturn, Alphabet announced that YouTube ad revenue reached $9.2 billion, exceeding analysts’ predicted $9.16 billion and a significant increase from the same period in 2022.

CEO Sundar Pichai, in a statement accompanying the earnings call, expressed Alphabet’s pleasure with “the growing contribution from YouTube.” He also highlighted the company’s digital subscription services, including YouTube and cloud storage service Google One, achieving $15 billion annually.

“The significant growth in our subscription revenue over the past few years demonstrates the ability of our team to deliver high value-added services and provides a strong foundation on which to build,” he stated. Ta.

Like many other companies in the technology industry, Alphabet is aiming to take advantage of the AI ​​boom, with the mention of the word “AI” occurring more than 70 times in Tuesday’s earnings call. Pichai outlined the company’s plans to integrate its new AI model Gemini across various products, including search, advertising, and cloud.

Alphabet’s emphasis on AI comes as the company seeks to diversify its revenue streams. Its core search advertising business has stalled, and it faces growing antitrust litigation threats. The US Department of Justice filed a lawsuit against Google, alleging a monopoly on digital advertising technology. A judge’s ruling in January confirmed that the company will be forced to stand trial for charges brought by multiple states regarding advertising market dominance. The company also faced an antitrust case last year related to its dealings with other technology companies, including payments to Apple of about $18 billion annually to keep Safari’s default search engine.

“Google could have its toughest year yet as antitrust threats loom and the death knell sounds for third-party cookies,” stated Evelyn Mitchell Wolf, a senior analyst at Insider Intelligence. “We need to prepare ourselves for the possibility that something may happen.”