Google experienced a significant slow down in sales last month but still managed to beat analysts’ revenue expectations for the quarter ended March 31, 2020.
Alphabet reported its first quarter results overnight, giving the first look into how the advertising giant is weathering COVID-19 economic conditions and a dramatic drop in advertising spend.
While Google search volumes skyrocketed, the company said it experienced “a significant and sudden slowdown in ad revenues” in March as sectors of the economy were shut down by government’s hoping to limit the spread of COVID-19. However the lost revenue was offset by strong growth earlier in the year.
“Our business, led by Search, YouTube, and Cloud, drove Alphabet revenues to $41.2 billion, up 13 per cent versus last year, or 15 per cent on a constant currency basis,” said Ruth Porat, Chief Financial Officer of Alphabet and Google.
“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues. We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.”
Porat said Alphabet anticipates the second quarter will be difficult for Google’s advertising business.
Sundar Pichai, Chief Executive Officer of Alphabet and Google, said recovery in ad spend would depend on a return to economic activity, a measure that is uncertain and will vary geography-by-geography.
Pichai told investors he was confident the business would return as it did post-2008 financial crisis because digital ad spend can be turned on and off quickly. He also noted Google’s business is much more diversified than a decade ago thanks to its software and cloud infrastructure business.
Advertising revenue still makes up more than 80 per cent of Alphabet’s total revenue but its cloud business is growing quickly. The business segment recorded US$8.9 billion in sales in 2018, up 53 per cent from the previous year.
The company now has more than six million paying G Suite customers. Google Cloud, including GCP and G Suite, revenues were $2.8 billion for the first quarter, up 52 per cent year-over-year.
Pichai said the company is taking a long term view and will slow down the pace of hiring in the remainder of 2020, while maintaining momentum in a small number of strategic areas.
The shift to digital
The CEO stated that the changes social distancing have required will accelerate the shift to digital and the new behaviours will outlast the pandemic.
“It’s now clear that once the emergency is past, the world will not look the same. Some social norms will change and many businesses are speaking to us, looking to reinvent their operations,” Pichai said.
“We have seen that the most pressing concern of small and large businesses right now is business continuity, solving for issues like employee safety, dramatic falls or surges in demand, supply chains and managing a remote workforce.”
“Ultimately, we’ll see a long-term acceleration of movement from businesses to digital services, including increased online work, education, medicine, shopping and entertainment. These changes will be significant and lasting.”