Daily Management Review

Despite Profits, Google’s Alphabet Warns Of Tough Times Ahead


Propelled by double digit growth in advertising in Google despite the economic slowdown from the novel coronavirus, Apple Alphabet Inc beat analysts’ estimate for quarterly revenue for the latest completed quarter.
Following the announcement, the shares of Alphabet increased by 4 per cent. Share price of the company are down by 8 per cent so far this year.
In the last few years, Google had earned record revenues because of a booming economy and rising internet usage. The coronavirus pandemic however has now split those two trends with plunge of consumer spending and growth in demand for internet services with additional usage.
Even though users are currently searching more, they are not searching for commercial topics and therefore advertisers are cutting down on spending, said Alphabet Chief Financial Officer Ruth Porat while talking to analysts.
“As of today, we anticipate the second quarter will be a difficult one for our advertising business”, Porat said.
By the end of March, search ad revenue had declined by a “mid-teens percentage” compared ot the same period a year ago, Porat said.
There was a 13 per cent year on year growth in overall revenues of Alphabet in the first quarter at $41.2 billion. According to Refinitiv, the average estimate among analysts for the figure was at $40.29 billion while the analysts were expecting the revenue growth to be the slowest from the company since the second quarter of 2015 when the company clocked 11 per cent revenue growth.
While for many users this year, Google tools including Duo video chatting and YouTube have become indispensible, no charge is largely taken for their usage by the company but generates revenues by selling ad tools as well as links, banners and commercials on its services and as well as those of its partners.
But in the United States, more than 26 million Americans have filed for unemployment during the last month which was bad news for the company because the US is the largest market of Google in terms of ad sales. The unemployment number in the US has wiped off all of the job gains made by the country in the last decade. About 83 per cent of Alphabet’s revenue last year was generated by Google’s ads business. The revenues tend to be directly linked to the broader economy which is the reason for the slow revenue growth of Alphabet in the first quarter.

There was a 10 per cent year on year growth in Google ad sales which came in at $33.8 billion.
“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.
Cloud services accounted for about 5.5 per cent of Alphabet’s revenue last year. In order to aid customers affected by the pandemic, the company has extended various free offers this year.