Alphabet hit by ‘significant slowdown’ in ad sales, but ad revenue surges

Apr 29, 2020 | Ad tech, Content marketing, Mobile, Online advertising, Online video, Paid search, Search Engine Optimization

Alphabet hit by ‘significant slowdown’ in ad sales, but ad revenue surges
Google's parent company Alphabet has revealed a 13% surge in first quarter revenue despite a "significant" hit to advertising sales as the COVID-19 crisis continues.

Alphabet was the first of the five big US tech firms to report on their progress during the pandemic, Amazon, Microsoft, Apple and Facebook due to report this week. These will all be watched closely, as companies and consumers alike cut back on their spending in reaction to the COVID-19 crisis.

Google’s parent firm recorded revenue of $41.2bn between January and March.

Shares rose more than 3% in after-hours dealing on Wall Street when Alphabet’s figures were revealed.

Lockdown conditions across key markets in Europe and North America meant there was little incentive to advertise in areas such as travel and leisure.

The 13% revenue growth figure represented the weakest rise in first quarter sales for five years.

Google ad sales were $33.8bn – a rise of 10% on the same period last year.

Sales from Google Cloud and YouTube continued to surge, underscoring versatility in the company’s overall product line — YouTube ad revenue increased 33.4%, to $4.04 billion from $3.03 billion a year ago, while Google Cloud sales grew 52%, to $2.78 billion from $1.83 billion.
A downturn in advertising was expected as the coronavirus pandemic plunges the global economy into a tailspin. Travel and entertainment ads in particular have dried up, driving down a rich source of revenue for Google and reportedly forcing the company to slash its marketing budget by as much as half in the second half of the year.

Earlier this month, Alphabet Chief Executive Sundar Pichai told employees the company would reduce spending the rest of the year, starting with hiring.

“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues,” Alphabet Chief Financial Officer Ruth Porat said in Tuesday’s announcement. “We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.”

During the call with analysts late Tuesday, Pichai described Q1 as a “tale of two quarters”: a strong start that quickly tailed off because of COVID-19. He said the transparent, cost-effective nature of search offers promise in pivoting to adapt to the economic crisis, and Google is more diversified now with cloud services than it was during the Great Recession in 2008-’09.

“At the inception of the crisis, the increase in user interest was for information about COVID-19 and related non-commercial topics,” Porat said in the call. “Although we have seen some very early signs of recovery in commercial Search behaviour by users, it is not clear how durable or monetisable this behaviour will be.”

Porat added that Google’s non-advertising business remained strong throughout the quarter, especially the performance of Google Cloud, YouTube, and Google Play. “We anticipate the second quarter will be a difficult one for our advertising business,” she said, and will closely hew to macroeconomic performance.

All topics

Previous editions

Get email edition