Google parent Alphabet’s Q1 profits dropped by more than $1 billion compared to 2021

YouTube’s revenue miss is putting more focus on the development and monetization of Shorts

After a record-breaking 2021 with annual revenue of $257 billion — the first time it has gone over $200 billion for a year — Google’s parent company reports in a filing (pdf) that it has started off 2022 with Q1 revenue that’s up 23 percent from the same period last year, reaching $68 billion.

However, with expenses up compared to 2021, its net profit actually dropped to $16.4 billion compared to last year’s $17.9 billion. Research and development costs for the quarter rose by over $1 billion compared to Q1 2021, going from $7.485 billion to $9.1 billion. As the New York Times notes, last year the company had a $4.8 billion gain in its stock holdings, and in Q1 2022 it recorded a $1.07 billion loss.

Google’s search business brought in $39 billion, up significantly over the Q1 2021 result of $31 billion. The overall advertising business, including Search, YouTube, and its various ad networks, managed to pull in $54 billion in the first quarter alone.

YouTube advertising revenue was also up, reaching $6.86 billion, but showed slower growth than it has over the last couple of years during the pandemic. Last year, it had grown by about 30 percent but only went up 20 percent this year as competition from TikTok continued to heat up. YouTube has responded by expanding its support of Shorts for creators and viewers, but the growth fell short of analyst expectations, and prices of its shares dropped by about 7 percent in after-hours trading.

In an accompanying statement, Google and Alphabet CEO Sundar Pichai said, “Q1 saw strong growth in Search and Cloud, in particular, which are both helping people and businesses as the digital transformation continues. We’ll keep investing in great products and services, and creating opportunities for partners and local communities around the world.”

On a call with investors, Pichai called out the investments in YouTube Shorts, where daily views have reached 30 billion, four times higher than a year ago, and that the company is focusing on building a great experience first. He specifically brought up plans for a redesigned YouTube experience that will give viewers more controls and the ability to comment while watching on a connected TV and the increased support for Shorts.

Earlier this year, YouTube chief product officer Neal Mohan went into more detail about the upcoming changes, as well as upgrades for the editing experience, and additional ways for creators to make money from Shorts, with Super Chats, branded content, and eventually, shopping from Shorts. You can listen to him talk about the plans during his appearance on The Vergecast with Nilay Patel and Catie Keck.

CFO Ruth Porat said the company expected a “headwind” to growth as time spent on YouTube Shorts increased, ahead of increased monetization on the platform. We didn’t hear anyone say the word “TikTok,” but it clearly loomed over the conversation.

If you’ve ever looked at the way Google reports earnings, then you know it’s typically impossible to tell how well hardware products like the Pixel phone, Nest, Chromecast, and Android are doing. Android, Chrome, and all of Google’s hardware initiatives are bundled as “Google other” as a subcategory of overall Google services, which also breaks out results for Search and YouTube. The “Google other” category pulled in $6.8 billion, about $400 million higher than last year.

Revenue from Google Cloud, which just launched its Media CDN based on the same backbone that carries YouTube’s videos, is also up, reaching $5.8 billion compared to $4 billion last year.

Alphabet’s “Other Bets,” comprised of its experimental projects like self-driving company Waymo, health company Verily, and Google Fiber, brought in $440 million in revenue, more than double what it reported in the year prior.

Google parent Alphabet’s Q1 profits dropped by more than $1 billion compared to 2021