Google reported its weakest revenue growth in nearly five years as the pandemic-driven recession began to shrivel its advertising sales in the first quarter.
It’s good news/bad news for Google. Ad sales are down, but usage of its products, most notably search and YouTube, are substantially up.
On a conference call with analysts, Alphabet CEO Sundar Pichai said searches for the term “COVID-19” for instance, was “4 times greater,” than even the peak of interest during the Super Bowl in January.
The January-March earnings for Google parent Alphabet offer a first look at how the digital ad market has fared amid widespread orders requiring consumers to stay at home. Those restrictions have given most advertisers little incentive to market their products and services.
It’s an incomplete picture because ad demand in most parts of the world wasn’t hit hard until late February and early March. That’s when the coronavirus outbreak accelerated and governments imposed lockdowns to fight it.
“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues,” said Ruth Porat, Alphabet’s chief financial officer.
Alphabet’s first-quarter revenue increased 13% from the same time last year to $41.2 billion. While most companies would celebrate that kind of growth, it’s a significant slowdown for Google, which has regularly generated quarterly revenue gains of 20% to 25%.
The company’s revenue growth hasn’t been this low since the summer of 2015, before Google created Alphabet as a new holding company for itself and a hodgepodge of small, risky tech ventures.
The performance was still slightly better than revenue of $40.8 billion projected by analysts surveyed by FactSet Reearch.
Alphabet earned $6.8 billion during the quarter, a 2% increase from last year. The company’s stock climbed nearly 4% to $1,278.96 in extended trading, although shares remain about 17% below their peak reached about two months ago
Facebook, the second largest seller of digital ads behind Google, is expected to also disclose a dramatic slowdown on Wednesday when it’s scheduled to release its January-March numbers. Apple, which has already warned of lower revenues, reports on Thursday.
The current April-June quarter is expected deliver even grimmer news, with major advertisers in airlines, hotels and other travel-sensitive have little or no reason to spend anything to reach consumers either prevented or uninterested in going on their usual summer vacations.
Neither Alphabet nor Google have ever issued guidance on future results, and it isn’t deviating from that practice now. Stock-market analysts, however, aren’t particularly optimistic.
Their second-quarter projections foresee flat Alphabet revenue. A no-growth quarter would be unprecedented for Google. Its most lackluster showing so far came more than a decade ago in the midst of the Great Recession when revenue during the second quarter of 2009 rose by a paltry 3%.
Even as its revenues slow, Google remains a moneymaking machine, thanks how deeply ingrained its search engine, digital maps, Gmail and YouTube video services are in people’s lives. YouTube fared particularly well in the first quarter; its revenue increased 33% from the same time last year, driven by how much more time people are spending watching video while stuck at home.
But advertising tied to search results remains the company’s financial engine, and it is sputtering along with the rest of the economy. Revenue from Google’s search engine rose 9% during the first quarter, and presumably has deteriorated further since the end of March.
To help cushion the financial blow, Alphabet CEO Pichai has already curtailed the company’s hiring plans for the rest of the year and also is slashing the marketing budget to promote its own products and services.
The challenges facing Google are a downside of running a business built on offering free digital services paid for by ads. That model is more vulnerable to economic turbulence than to others based on paid subscriptions that people still value in tough times.
That has been particularly true for video streaming service Netflix and video meeting service Zoom. Both of those Silicon Valley companies have been thriving during a crisis that has left millions of people trying to find ways to entertain themselves and still see their family, friends and co-workers.
Contributing: Jefferson Graham, USA TODAY
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