Google: We’re not restructuring because AI is taking away roles

Google’s artificial intelligence-powered advertising products were cited as “bright spots” in the company’s ad performance in the fourth quarter, which missed analyst expectations, but continued to grow by low double-digits.

Ad revenue of $65.5 billion, up 11% compared to the same period in 2022, was around $420 million below estimates.

Performance was dragged by Google’s Network division, responsible for selling ads outside of its properties, which continued to retract by 2% to $8.3 billion.

Google’s brokering of ads outside its properties came under intense scrutiny in 2023. Two separate reports from Adalytics alleged quality and safety issues within its partner networks, triggering major advertisers to cut spending.

Search revenue—the most significant contributor to parent company Alphabet’s revenue growth— grew 13% to $48 billion, and YouTube’s ad revenue growth accelerated 16% to $9.2 billion.

The tech giant once again called out Performance Max, as well as its newer Demand Gen format, as driving momentum for the company at a time when it is throwing significant investment behind AI.

On Tuesday, Google chief business officer Philipp Schindler told investors that “tens of thousands” of advertisers are testing Demand Gen campaigns, which automatically place ads across YouTube, Discover and Gmail. He also noted that adoption of Google’s automatically created assets was up in the fourth quarter “with strong feedback.”

Schindler contested suggestions that the company’s emphasis on AI-powered products is replacing workers, following a recent resurgence in layoffs.

Hundreds of jobs within Google’s ad sales division were cut in mid-January as part of what Schindler described as “portfolio adjustments” to focus more of its resources on the team responsible for its small to medium-sized clients, called the Global Customer Solutions team and away from its Large Customer Sales team. At the time, industry analysts speculated that the growing automation of Google’s ad processes contributed to the downsizing.

“When we restructure, there’s always an opportunity to be more efficient and smarter in how we service and grow our customers,” Schindler said, but added, “We're not restructuring because AI is taking away roles.”

The ad sales cuts were part of a broader workforce reduction at Google in January, impacting more than 1,000 roles to “create capacity” to invest in the company’s “big priorities,” chief executive Sundar Pichai said in a note to employees. He said that more “role eliminations” are to come.

The company said on Tuesday it expects severance expenses to be roughly $700 million in the first quarter of 2024.

Google's parent Alphabet shed 7,732 employees, or 4% of its workforce, throughout 2023—bringing its total staff number to 182,502. Pichai unveiled plans to slash approximately 12,000 roles across the company in January 2023 to realign the organisation around its priority investments—chiefly AI.

As a result, the company racked up $2.1 billion in severance charges and $1.8 billion in costs related to office space reduction.

While Google’s ad performance in Q4 was shy of estimates—sending Alphabet’s stock down by more than 5% in after-hours trading—Alphabet’s overall performance was strong in the quarter, with revenue of $86.3 billion, up 13% year on year.

Profit of $20.7 billion jumped by 52% from last year’s $13.6 billion.

The company’s cloud division had a solid quarter, with revenue growing 26% to $9.2 billion and profit more than tripling from the third quarter to $864 million. It was a loss-making division a year prior.

Google’s Services revenue grew 12% to $76.3 billion with subscriptions “growing strongly” across YouTube Premium, YouTube Music, YouTube TV and Google One, its storage solution, Pichai said. Google now makes $15 billion in annual revenue from subscriptions.

Alphabet’s growth in the quarter was most robust in the Asia-Pacific region, with revenue of $14 billion, up 17% yearly. The next most substantial region was Europe, the Middle East and Africa, with $25 billion of revenue, up 15%, followed by the U.S. with 14% growth to $42 billion and Other Americas, with 11% growth to $5.3 billion.

For the full year, Alphabet posted $307.4 billion in revenue and $73.8 billion in profit, up 9% and 23%, respectively.