The Shine Has Been Wiped Off For Now

Google – it’s not what it used to be.

The sacred Silicon Valley behemoth of technology is finally showing weakness.

Crazier things have happened.

In fact, Google recorded the lowest growth since 2013 and that goes well back when the US economy was picking up steam after the Great Recession.

Revenue growth slowed to 6% from 41% a year earlier as the company suffers from a continued downdraft in online ad spending.

The ramifications are quite large as it essentially means that in the short-term, the digital ad industry is impotent as we head straight for a 2023 recession.

I would say the most surprising part of the whole report was to see Google’s “growth” asset, YouTube, floundering at just 2% growth.

It’s still a $7 billion standalone business but to see that much of a decline was somewhat surprising.

Philipp Schindler, chief business officer for Google, said the company saw a pullback in spend on search ads from certain areas such as insurance, loans, mortgage, and cryptocurrencies.

The underperformance in numbers is yet another bad omen for ad tech companies and Snap was the canary of the coal mine when the stock dropped 28%.

Considering the disappointing tone of the industry now, it’s not shocking to see the CEO of Meta Mark Zuckerberg just ignore his entire Facebook business for the metaverse.

It’s that bad selling digital ads now.  

Google’s earnings per share (EPS) dropped by 24% year over year highlighting the challenges of running a large tech company during times of high interest rates and high inflation.

It’s a recipe for underperformance and we are seeing it in every part of Google’s business.

Maybe one of the only bright spots was the Google Cloud surging by 38%.

The cloud is one of the few growth drivers still left at Google.

The problem I have with Google is one that I have with many other big Silicon Valley tech firms.

They have become stagnated and too corporate.  

They aren’t the leaders of innovation they once were and have pretty much juiced out the cash cow business they possess whether it be Apple’s iPhone or Google’s search engine or Meta’s Facebook.  

The Silicon Valley bros aren’t immune from the rough times.

Long term, it’s hard to see Google becoming the growth engine they once were – a firm that consistently expanded 30% each quarter.  

In fact, what I see clearer now than before is the cannibalization of Silicon Valley.

These big firms are starting to behave in a way an investor can understand as a scarcity mindset.

When the pie is perceived as shrinking, companies will step on their toes to get that extra piece of the pie.

Many of these moves illustrate this new entrenched mentality whether it be Apple’s sensitivity to others using the Apple store or the inability to offer stock-based compensation to new employees.

And that’s if a company is still hiring, last time I checked, many tech firms have either frozen hiring or are deleting big swaths of employees.

The new acquirer of Twitter also plans to fire 75% of Twitter’s staff on Day 1 removing the Chief Diversity Officer and many of the frothy positions that don’t add much value.

Big tech needs a reset and this is just more confirmation that restructuring is needed badly.