Tuesday, August 11, 2020

Google revenue is up, but coronavirus crisis is already taking a toll

Apr 29. 2020
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By The Washington Post · Rachel Lerman · BUSINESS, US-GLOBAL-MARKETS 

Google's parent company experienced a "tale of two quarters," said Alphabet chief executive Sundar Pichai on Tuesday, as first-quarter revenue increased 13 percent despite a drop off in ad sales as the coronavirus pandemic hit.

The first two months of the year started strong, Pichai said. But as the economy started to shut down, consumers started to limit spending and companies started laying off employees and slashing costs. Google's core business - digital advertising - suffered an "abrupt decline," particularly as key customers like travel websites slashed ad spending.

Still, people are using Google's services more than ever, Pichai said. And many businesses are moving toward cloud computing, which allows companies to rent space from Google's servers.

"We see businesses thinking deeper about the shift to digital," he said. As Google shifts resources during the crisis, "part of this is making sure our investments deliver value with respect to that shift." 

Alphabet reported revenue grew to $41.2 billion in the first quarter, up from $36.3 billion the same year ago. Profits were also up slightly to $6.8 billion.

The next quarter, which started April 1, is expected to show a fuller picture of the extent of the advertising slowdown. Google's stock price ticked up 9 percent in after-hours trading Tuesday to $1,344.67, a sign that investors haven't lost confidence in the powerful company's ability to make it through the slump.

Alphabet was the first of the tech giants to report earnings this week, a foreshadowing of potential consequences for the broader industry as companies brace for the biggest economic downturn since the Great Depression. Still, the biggest tech companies are expected to be some of the companies to make it through the crisis largely unscathed thanks to huge cash reserves and new consumer tech habits.

Amazon in particular is expected to report a big uptick in revenue Thursday when it reports earnings, thanks to a surge in online orders as people stay home. (Amazon chief executive Jeff Bezos owns The Washington Post.)

Google makes the bulk of its money from selling online advertisements across search, YouTube and other products - a business that has been steadily growing for years as more advertisements moves online. But as businesses cut marketing budgets and consumers close their wallets amid the coronavirus crisis, analysts expect Google's core business to feel the pain and serve as a bellwether for other digital advertisers.

Google's first quarter financial results were not as bad as some investors had feared and analysts believe the company is well positioned.

"Google is in a fine financial position to be able to weather a storm," said eMarketer analyst Nicole Perrin, noting its results indicate the impact of the pandemic on digital advertising might not be bad as it could have been.

Facing that reality, Google announced during its call it is taking cost cutting measures such as slowing hiring for the year, backing off from earlier plans in which it intended to hire about 20,000 people during 2020. It will also pause most construction of office space and reduce marketing budgets.

Pichai promised staff in an email early this month that no major layoffs were coming.

Still, the company and its huge cash reserves is better positioned than smaller rivals.

On the call, Pichai emphasized the company's cloud computing business, which is working with New York state on its unemployment website and online retailers such as Wayfair. As more companies evaluate an increasingly digital world, he believes the cloud business is poised to pick up customers.

The company's video streaming service YouTube is also seeing a spike in usage as people spend more time watching videos online.

Google is also benefiting from a slowdown in dozens of regulatory probes launched last year to investigate potential antitrust behavior. In fact, both Google and Apple are partnering with the government to help trace potential cases of covid-19.

 

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