Google parent Alphabet ‘losing a bit of market share,’ analyst says

Roth Capital Partners Managing Director Rohit Kulkarni joins Yahoo Finance Live to discuss Alphabet earnings, the decline in ad revenue for YouTube, cost-cutting plans, investor sentiment, AI, and the outlook for Alphabet.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: Digital advertising slowdown is escalating for Alphabet. The tech giant posted its fourth consecutive drop in profit in Q4, falling 34% year over year. But YouTube specifically seeing a nearly 8% decline in ad revenue. Roth Capital Partners Managing Director, Rohit Kulkarni, joins us now. Rohit, always great to get some time with you. Is this just the start of several bad quarters for Alphabet's advertising business? Or was this the bottom?

ROHIT KULKARNI: I would say we are in the, to use a baseball analogy, we're in probably bottom of fourth year. By that what I mean is we're somewhere in the middle as far as downward revisions to where Alphabet might be going. In my opinion, Alphabet did earn a lot of incremental market share during '21 and '22. A lot of that was at Facebook's expense because of some Apple changes.

I feel that slowly changes over the next 12 months plus the economy. So I feel they are in this kind of middle ground, where probably they are going to lose a little bit of extra market share. And on top of that, there is the ad recession in my opinion.

BRAD SMITH: Would you be-- would you be concerned if you're Alphabet about who you're losing market share to and whether or not that market share will actually return?

ROHIT KULKARNI: I think it remains to be seen. As the pie starts growing again, in my opinion, perhaps we are not there yet. At some point in '23, we'll start to see the evidence of the digital advertising pie is growing at the clip it used to prior to the pandemic, high single digits, low double digits. When it starts, probably the incremental market share Google will start earning back. But in the meanwhile, I think right now they are in a position where people spend a lot of extra money on search. And now they're finding better ways to find, not just to Facebook, but TikTok to even Apple search, Instagram.

So there are more places that are more settled down right now than what YouTube and search seem to provide. So I would call it this is the peak market share for Google right now. But they're in this kind of window or a tunnel, where they probably are going to be losing a little bit of market share.

JULIE HYMAN: Rohit, we just got a big jobs report, a big, big jobs report, a big number of jobs being added in January. Of course, Alphabet was one of the companies that announced cuts during the month of January. Are those cuts done at Alphabet and/or at other tech companies?

ROHIT KULKARNI: I'm afraid in some cases like Alphabet, the signal yesterday that we got, which was a little bit of a surprise from the management team, is that they are going to slow down hiring, which was not something that an investor looking into a recession was willing to hear. So I feel there could be a change in stance maybe two or three months down the road, where a company like Alphabet may feel the need to do additional cuts. May not be completely in headcount. But there are many different ways that these companies can save money, be it office buildings, be it real estate, be it travel and various different ways.

So I think there could be a combination of the ways that they would be looking to save some cash and just to improve the sentiment with investors. So headcount reduction, possibly we are almost done. There could be small tidbits here and there in the next three months. But there would be, in my opinion, more cost reduction initiatives that would come out of Alphabet is what I think.

JULIE HYMAN: Something else I want to ask you about is artificial intelligence because, Rohit, I heard one stat this morning that they talked about on "The Call". They mentioned the words more than 50 times. I have to say I don't listen to all of Alphabet's earnings calls. So I don't know. Maybe they've been talking about this for a long time. But forgive me for thinking they're kind of jumping on the bandwagon here. I mean, what's the real opportunity here in AI for an Alphabet?

ROHIT KULKARNI: To be honest, from an investor perspective, Google has been a leader in AI for a number of years. We don't see that at the surface on the products. But under the surface, in my opinion, Google has always been a leader in AI. In the last two, three months, once you start seeing consumer adoption of new AI products, ChatGPT, for example, is touted as one of the fastest growing consumer products that people are adopting for AI.

So I think Google is now forced to stake a claim and remind people that, hey look, we've been working on this for a number of years. We acquired DeepMind many, many years ago. Now they're going to provide more accounting disclosure on DeepMind. They talked about AI and new applications of AI that they are going to unlock and show consumers that look, you can play around with Google-generated AI tools, just as there are many other places that you are doing right now. So I think in my opinion, Google still remains the leader in AI. It is just that they are now forced to remind investors that look, we have been working on this for a number of years. Just because a new toy or new shiny vessel is coming along, don't forget about us.

JULIE HYMAN: In 20 seconds, Rohit, will a DeepMind-enabled Google search be able to go up against a ChatGPT-enabled Bing?

ROHIT KULKARNI: I would definitely put my money behind Google, DeepMind, and their search capabilities.

JULIE HYMAN: Rohit, thank you so much. Roth Capital Partners Managing Director, Rohit Kulkarni, appreciate your time on this jobs Friday and also big tech Friday. Thank you.

ROHIT KULKARNI: Thank you.

JULIE HYMAN: On the former front, let's recap jobs real quick. The US adding 517,000 jobs in January. Unemployment rate falling to 3.4%. Wage growth though still under control, rising 0.3% month over month, 4.4% year over year.