(Reuters) - Google parent Alphabet Inc's (GOOGL.O) disappointing ad sales sparked worries across the digital media sector on Tuesday as advertisers cut back on their spending in the face of an economic slowdown.

Alphabet called out slowing spending by advertisers on YouTube, said financial services spending was cooling on Google, and plans to cut hiring by more than half.

The negative results shattered many expectations that Google, which is the world's largest digital advertising platform by market share, would remain strong in a weakening economy and reinforced worries on Wall Street that inflation will continue to hurt advertising spending. Last week, smaller rival Snap Inc's (SNAP.N) slowest-ever revenue growth rate sent inflation fears through tech sector and temporarily wiped out $40 billion in market capitalization.

3 minute readOctober 26, 20224:06 AM GMT+5Last Updated 3 days ago
Alphabet's miss fans inflation fears across digital advertising
By Sheila Dang and Eva Mathews
Google logo is seen on on the company's European headquarters in Dublin
The Google logo is seen on on the company's European headquarters in Dublin, Ireland, February 27, 2021. REUTERS/Clodagh Kilcoyne
Oct 25 (Reuters) - Google parent Alphabet Inc's (GOOGL.O) disappointing ad sales sparked worries across the digital media sector on Tuesday as advertisers cut back on their spending in the face of an economic slowdown.

Alphabet called out slowing spending by advertisers on YouTube, said financial services spending was cooling on Google, and plans to cut hiring by more than half.

The negative results shattered many expectations that Google, which is the world's largest digital advertising platform by market share, would remain strong in a weakening economy and reinforced worries on Wall Street that inflation will continue to hurt advertising spending. Last week, smaller rival Snap Inc's (SNAP.N) slowest-ever revenue growth rate sent inflation fears through tech sector and temporarily wiped out $40 billion in market capitalization.

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Shares in Alphabet fell 6.5% in trading after the bell.

Alphabet's weak results raises concerns for other companies in the sector, especially advertising-dependent Meta Platforms (META.O). The Facebook parent, which reports results on Wednesday, saw shares drop 4.5% on Tuesday.

Ruth Porat, Alphabet's chief financial officer, said the deceleration in overall advertising revenue was due to last quarter's "very strong performance," adding that lower ad sales on YouTube were due to some advertisers pulling back on their ad spending.

Companies that slowed ad spending included those in financial services such as insurance, mortgages and cryptocurrencies, Alphabet said. Travel and retail advertisers helped Google Search ad revenue.

Google's advertising revenue was $54.48 billion in the third quarter, compared with $53.13 billion last year but came in below analysts' expectations.

The company said total revenue was $69.09 billion in the quarter ended Sept. 30, compared with $65.12 billion a year earlier.

Analysts on average expected revenue to be $70.58 billion, according to Refinitiv data.

"Google’s earnings miss this quarter proves it’s not immune to the challenges facing the digital advertising industry at large," said Jesse Cohen, senior analyst at Investing.com.

The speed of the slowdown also shocked investors who are "highly sensitive to the changing tide," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Ad sales on streaming video site YouTube also declined to $7.07 billion, from $7.2 billion in the prior-year quarter.

Alphabet's net income fell to $13.91 billion, or $1.06 per share, from $18.94 billion, or $1.40 per share, a year earlier. Net income missed analyst expectations of $1.25 per share.

The company's operating margin declined to 25% in the third quarter, from 32% in the prior year.

The tech giant said in July it would slow the pace of hiring for the rest of the year, saying it was "not immune to economic headwinds." Porat said the company hired 12,700 people in the third quarter and expects to hire less than half that number in the final quarter.

Revenue from Google Cloud rose to $6.9 billion during the quarter, from $5 billion a year earlier.

During a conference call with analysts, Alphabet Chief Executive Sundar Pichai said the company would continue to evaluate its projects and make "course corrections" as needed. "Times like this are clarifying," he said.