Like life for a lot of us, Google's 2020 was going relatively fine until March hit. Ad sales nosedive, but yay for cloud and Chromebooks?

Does anything really matter when you have $100bn in the bank and pocketing nearly $7bn a quarter in profit?

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Google parent Alphabet’s financial figures for its first quarter of 2020 were a mixed bag. Two months of business as usual, if not better than usual, then a miserable March as advertisers shut their wallets amid the coronavirus pandemic.

“In the first two months, advertising revenue was strong, but in the last month there has been a significant and sudden slowdown in advertising revenues, related to those areas of highest COVID infection,” Alphabet CEO Sundar Pichai said in a conference call on Tuesday with analysts after revealing his corp's scores on the doors [PDF].

Here's a summary of Alphabet's Q1 2020, the three months to March 31:

  • Revenue for the quarter was $41.2bn, 13 per cent up on the same period last year, beating Wall Street's expectations by $990m. The vast majority of Alphabet's sales are from online adverts – here's the break down:
    • Google Search ads: $24.5bn, up 8.7 per cent
    • Adsense ads: $5.22B, up 4.1 per cent
    • YouTube ads: $4.03B, up 33.5 per cent
    • Non-ad YouTube sales: $4.44bn, up 22.5 per cent
    • Google Cloud: $2.78bn, up 52.2 per cent
    • Other projects: $135m, down 20.6 per cent
  • Net income growth was flat: it banked $6.8bn in profits compared to a year-ago $6.7bn. On a non-GAAP basis, profit fell 22 per cent from $8.3bn to $6.8bn.
  • GAAP earnings per share came in at $9.87, versus $9.50 this time last year though missing expectations by $0.34.
  • Taxes and share buybacks were a mixed bag. The Chocolate Factory paid an effective tax rate of 11.9 per cent, and spent $8.5bn on buying back Google stock – a decision CFO Ruth Porat called a “responsibly-sized” financial allocation.

March was indeed a glum month for ad revenues, with figures dropping by “percentages in the mid teens,” finance chief Ruth Porat said. Furthermore, people aren't searching for expensive or high-margin consumer goods, but for “less commercial topics, leading to reduced spending by advertisers.”

The ground beneath Alphabet's ad sales teams opened up first in Asia – the virus's starting point – where demand was “uneven,” she said. The full worldwide impact of the virus on Google's numbers is likely to be felt in subsequent quarters. Looking ahead, Porat said advertising spend is closely tied to the larger macroeconomic climate, and it would be “premature to comment on the timing of recovery.”

In response to the pandemic, Alphabet is slowing down hiring considerably, maximizing its server utilization, and cutting back on office building, marketing, and travel costs. While its fixed costs are relatively inflexible, Porat said, the tech giant is doing its best to make every buck count. It’s also got more than $100bn in cash reserves to fall back on if times get really tough.

There were some bright spots in the results. As ad sales crashed, Chromebook sales rocketed as people snapped up gear to work from home, Pichai said. Google Cloud also saw revenues rise 52 per cent to $2.8bn (though how much that cost to operate isn't known), Gsuite added to its customer roll call, and there were more than 80 million daily Google Meet video chats, he added. Not quite Zoom levels, we note.

Wall Street certainly seems to have confidence in Alphabet to weather the storm despite no Q2 outlook. The group’s stock price rose seven per cent in after-hours trading to $1,331. ®


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