Alphabet & Meta to Focus on AI, Efficiency in the Year Ahead

Many of the leading technology companies posted earnings this week, providing new insights and a better understanding of how the advertising and technology industries are faring so far this year. Against the backdrop of recessionary forces, increased competition and regulatory pressure, and changing consumer behavior, alongside expanding signal loss, nearly every Big Tech company had sizable layoffs and restructured their operating model in recent weeks as they set their sights on doing more with less to deliver long-term profitable growth.

Key Takeaways

Amidst cost pressures, heightened competition, and reduced advertiser demand in a challenged macroeconomic climate, Alphabet and Meta missed revenue expectations for the fourth quarter. 

In quarterly earnings calls this week, executives from both Alphabet and Meta spoke highly of their respective investments in artificial intelligence services and how each company plans to become more nimble in the months ahead. 

Google parent Alphabet missed expectations on earnings and revenue last quarter, as a challenged macroeconomic climate led to pullbacks in ad spend across the company’s digital platforms. YouTube ad revenues were $7.98 billion, missing expectations of $8.25 billion, while Google Search revenue was $42.6 billion, down by 1.6 percent year-over-year. As the world’s largest search engine, Google is facing significant regulatory pressure with hefty fines levied by regulators in the European Union in recent months, and the company is now a part of a new antitrust complaint from the U.S. Department of Justice against Google’s advertising business. 

Related: The DOJ vs. Google: What Advertisers Need to Know

Competition continues to be a cause for concern for the company. YouTube reported that its short-form video product YouTube Shorts reached 50 billion daily views as of last quarter. While impressive, this number still trails Instagram and Facebook, as Meta reported last October that Reels sees 140 billion daily views across the two platforms. In a bright spot for Google’s advertising business, Alphabet Chief Business Officer Philipp Schindler announced that the company would soon debut new CTV advertising tools to support the recent multi-year deal for the NFL Sunday Ticket on YouTube TV. 

CEO Sundar Pichai spoke highly of the company’s AI investments, sharing in his opening remarks that “AI is the most profound technology we are working on today.” Under mounting pressure from Microsoft’s investment in OpenAI’s ChatGPT, which has seen the fastest consumer adoption rate of any technology in recent history, Pichai promised that “very soon, people will be able to interact with [Google’s] newest, most powerful language model as a companion to [Google] Search, in experimental and innovative ways.” Shortly after making this announcement, Google shared it would be hosting an event on February 8 to showcase how the company is using the power of AI to “reimagine how people search for, explore and interact with information,” according to The Verge.  

Moving forward, Alphabet’s DeepMind AI research division will be reported as part of the company’s core operating costs rather than in its Other Bets category, signaling the growing importance of generative AI and language model investments for the tech company. 

Meta has entered its “year of efficiency,” according to CEO Mark Zuckerberg, as the company aims to cut costs and streamline operations in pursuit of strong revenue growth. Last quarter, revenue fell four percent year-over-year though that was below analyst expectations. Zuckerberg spoke about the recent layoffs and said the company would work to flatten its organizational structure and remove layers of middle management to help streamline decision-making while also deploying AI tools to improve engineering productivity in the near future. “AI is the foundation of our discovery engine and our ads business, and we also think it’s going to enable many new products and additional transformations within our apps,” said Zuckerberg on the earnings call. 

Already, recent bets for improving Meta’s recommendation AI are paying off. Meta shared that its in-feed recommendation engine contributes to better engagement than ever before across Facebook and Instagram as people discover and engage with new content in their feeds. Daily active users on Facebook reached two billion users, up from 1.98 billion in the previous quarter. “The number of people daily using Facebook, Instagram, and WhatsApp is the highest it’s ever been,” according to Zuckerberg. 

Total ad impressions in Q4 increased by 23 percent, while the average price per ad decreased by 22 percent. Improving monetization capabilities for its short-form video product Reels remains a key focus for the business, as engagement and resharing for Reels videos has more than doubled on both Facebook and Instagram in recent months. Meta CFO Susan Li also shared that the company will continue to make significant investments in privacy-enhancing technologies and new tools that improve ad targeting and deliver better returns for advertisers.

As outlined by Insider Intelligence, TikTok may be the most well-known competitor to challenge the digital marketing duopoly (Meta and Alphabet), but it’s not the only one. Retail media networks are a growing competitive force via the likes of Amazon, Instacart, and Walmart, representing a new wave of opportunities for digital advertisers. In response, it’s clear from these earnings reports that Meta and Alphabet are making big bets on algorithmic content and AI services in an effort to counter competitor growth, attract more advertisers, and respond to consumer demand with a growing focus on artificial intelligence.