Alphabet Inc on Tuesday beat analysts’ estimate for quarterly revenue as its Google unit posted double-digit advertising growth despite the economic slowdown from the novel coronavirus.
The Shares of the company rose 4% to US$1,282 after the release of financial results with the company’s share going down about 8% this year at Tuesday’s close.
With the pandemic, the internet has automatically become the place for people to do more things. The rise in the usage of the internet drove most of Google’s revenues in the past few years but the new trend caused by the coronavirus pandemic has now affected the spending rate of users of the platform despite the increase in internet usage during this period of social distancing and community lock down.
The CFO of Alphabet, Ruth Porat further explained to analysts on Tuesday that while users were searching more, they were looking up less commercial topics which is cutting advertisers’ spending.
“As of today, we anticipate the second quarter will be a difficult one for our advertising business,” Porat said.
Porat said search ad revenue had declined by a “mid-teens percentage” by the end of March compared with a year earlier. The overall revenue of Alphabet by the first quarter of the year was US$41.2 billion up 13% compared to the previous year.
The average estimate among financial analysts tracked by Refinitiv was $40.29 billion, up 10.87%, expecting the slowest growth since 11.1% in the second quarter of 2015.
With the growth in internet usage, Google’s Duo video chatting platform as well as its video sharing platform, YouTube both became really essential for people who are working from home as well as those taking the social distancing measures serious.
The aforementioned services while soaring during the pandemic are free to use for users but the company makes money by offering advertisement through banner placement, links and so forth.
With job loss on the increase, more than 26 million people in the US have already filed for unemployment during the last month this is definitely taking its turn on Google’s ads sales and revenue generation.
83% of Alphabet’s revenue last year was from its ads sales. It tends to flow with the broader economy, which explains Alphabet’s slower revenue growth in the first quarter. Google ad sales were $33.8 billion, up about 10% from last year’s first quarter.
“YouTube provided an upside surprise, with growth actually accelerating despite the impact on ad budgets from the lockdowns,” said James Cordwell, analyst at Atlantic Equities.
Some 5.5% of Alphabet’s revenue came from cloud services last year which is meant to cater for businesses, schools and governments’ cloud computing needs. This year, the company has extended various free offers to aid customers affected by the pandemic.
The cloud business generated $2.8 billion in revenue, up 52% from a year ago. Alphabet’s total costs and expenses rose about 12% from a year ago to $33.2 billion.
That doesn’t stop the increase in the usage of Google’s services but the sales of the company is going down. The company has pared hiring, internship programs, marketing, office expansions and other spending plans.
Google just three months ago had said it would accelerate overall spending to add more staff for its cloud business and other areas where it is challenging to unseat dominant competitors.
Google doesn’t forecast revenue or profit but the current quarter and remainder of the year could bleak based on third-party forecast agencies.
While the US Presidential election as well as the Tokyo 2020 Olympics will hold later on this year, this might help the company gain more revenue. Some forecast agencies have estimated ad sales declines of up to 20% in the coming quarters.
Google in the past has been trying to adopt newer ways of displaying its advertisement to its users as people have been using Smart TVs, speakers, phones and other means of communication. The unpredictability of Google’s business is sort of a norm to its investors. Currency fluctuations and a greater push by advertisers to avoid offensive content have hurt Google, too.
Alphabet’s first-quarter profit was $6.8 billion, or $9.87 per share, compared with the analysts’ average estimate of $7.21 billion, or $10.40 per share. But the profits and losses of the company is usually hard to compare because the accumulation is based only on paper from its investments in startups and other outside businesses.