Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Google parent Alphabet (GOOGL -3.12%) (GOOG -3.18%) has been clobbered this year. After another round of punishment following the third-quarter 2022 update, shares are now down 38% this year with just two months left to go until the new year.  
The latest blame can be levied against a big slowdown in digital ad revenue at Google. Why? Some advertising buyers — specifically, cryptocurrency businesses — are reining in their promotional budgets.
Google’s advertising engine started to stall in the second quarter of 2022, and that trend continued in Q3. Google ad revenue was up only 2.5% from a year ago (it increased 11.6% in Q2). Numerous reasons were given for the slump, but Google Chief Business Officer Philipp Schindler offered this explanation on the earnings call:
In Search and Other, the largest factor in the deceleration in Q3 was lapping the outsized performance in 2021. In the third quarter, we did see a pullback in spend by some advertisers in certain areas in Search ads. For example, in Financial Services, we saw a pullback in the insurance, loan, mortgage and crypto subcategories.
When economic uncertainty rises — as it has this year amid high inflation, rising interest rates, and a war in Ukraine — banking and financial services’ profit margins can be an early casualty. In response, advertising activity is often cut to sustain the flow of cash into these highly sensitive companies. This time a year ago, though, all was well. Money was cheap (the Fed’s interest rates were still close to 0%), inflation was still being preached as “transitory,” and consumer spending was sky-high fueled by government pandemic aid. Crypto and financial services companies were more than willing to shell out big bucks for ads.
All that has changed now. Because of tougher economic factors, the cryptocurrency industry in particular has been beaten up. Crypto prices are in the dumps — Bitcoin (BTC 0.04%) and Ethereum (ETH 0.63%) prices are still down by more than 50% so far in 2022. Crypto trading activity, among both consumers and institutional traders, has taken a step back, as reported by crypto platform companies like Coinbase (COIN -5.78%) and Silvergate Capital (SI -2.03%). And a handful of crypto companies and investment funds have gone bankrupt.
How long will the crypto slowdown last for Google? Chief Financial Officer Ruth Porat said on the earnings call that “in the fourth quarter, the very strong revenue performance last year will continue to create tough comps that will weigh on the year-on-year growth rate of advertising revenues.”
I’m going to guess crypto ads will be a headwind into Q1 2023 as well. Remember all those Super Bowl ads last year, complete with celebrity cameos, implied endorsements, and a Coinbase QR code floating on the TV screen? That was in Q1 2022. Don’t expect a repeat of that at the big game in a few months. 
I for one am happy to no longer see Larry David, Tom Brady, and Matt Damon pumping digital coin trading. But let’s not make crypto the lone scapegoat here, because Google isn’t. In fact, it’s still making bets on blockchain technology, like Google Cloud’s selection of Coinbase to power some of its Web3 development.
The biggest headwind to close out 2022 won’t be cryptocurrency at all. It will actually be fiat currency — specifically, the U.S. dollar’s powerful run-up. That is creating a huge drag on international growth as Alphabet converts sales in other currencies back into stronger dollars. This effect reduced Alphabet’s revenue growth from 11% to 6% in Q3. Currency exchange rates will be even more pronounced in Q4, Porat said, thanks to the Fed still hiking rates in an attempt to beat inflation.
A strong dollar might be the nail in the coffin for Google’s growth for a bit longer. Nevertheless, Alphabet’s Google empire can still grow over time even with lower crypto ads. And as economic clouds begin to clear, Google’s crypto ad partners will likely begin to show signs of life again. Hold tight for a couple more quarters.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo and his clients have positions in Alphabet (C shares), Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool recommends Silvergate Capital Corporation. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/03/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.

Market data powered by Xignite.

source

Write A Comment