Google announced its weakest revenue growth in nearly five years as the pandemic-triggered recession began slashing advertising sales in the first quarter.
This is good / bad news for Google. Ad sales are down, but usage of its products, including search and YouTube, is on the rise.
In a conference call with analysts, Alphabet CEO Sundar Pichai said searches for the term “COVID-19”, for example, were “4 times greater” than even the peak of interest during the Super Bowl in January.
The January-March results from Google’s parent company Alphabet offer a first look at the digital advertising market situation amid widespread orders forcing consumers to stay at home. These restrictions have provided little incentive for most advertisers to market their products and services.
This is an incomplete picture as advertising demand in most parts of the world was not hit hard until late February and early March. This is when the coronavirus epidemic accelerated and governments imposed containment measures to combat it.
“Performance has been strong in the first two months of the quarter, but in March we saw a significant slowdown in advertising revenue,” said Ruth Porat, Alphabet’s chief financial officer.
Alphabet’s first quarter revenue increased 13% from the same period last year to $ 41.2 billion. While most businesses would celebrate this type of growth, this is a significant slowdown for Google, which has consistently delivered quarterly revenue gains of 20-25%.
The company’s revenue growth hasn’t been this weak since the summer of 2015, before Google created Alphabet as a new holding company for itself and a mishmash of risky small tech companies.
The performance was still slightly better than the $ 40.8 billion in revenue projected by analysts polled by FactSet Reearch.
Alphabet earned $ 6.8 billion in the quarter, an increase of 2% from a year ago. Shares of the company 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-biggest seller of digital ads behind Google, is also expected to disclose a dramatic slowdown on Wednesday when it is scheduled to release its January through March figures. Apple, which has previously warned of declining revenues, reported Thursday.
The current quarter of April to June is expected to provide even darker news, with major advertisers in airlines, hotels and other travel-sensitive companies having little or no reason to spend anything to reach the consumers unable or indifferent to spending their usual summer vacations.
Neither Alphabet nor Google have ever published any advice on future results, and that doesn’t depart from this practice now. Stock analysts, however, are not particularly bullish.
Their projections for the second quarter are for Alphabet’s revenue to be stable. A quarter without growth would be unprecedented for Google. Its most lackluster result to date came more than a decade ago in the midst of the Great Recession, when revenues in the second quarter of 2009 rose a meager 3%.
Even as its revenues slow, Google remains a money-making machine, thanks to the deep anchoring of its search engine, digital maps, Gmail and YouTube video services in people’s lives. YouTube performed particularly well in the first quarter; its income is up 33% from the same period last year, due to the extra time people spend watching videos when they are stuck at home.
But search results advertising remains the financial engine of the business, and it is struggling with the rest of the economy. Google’s search engine revenue grew 9% in the first quarter and has likely deteriorated further since late March.
To help cushion the financial blow, Pichai has already slashed the company’s hiring plans for the rest of the year and also slashed the marketing budget to promote his own products and services.
The challenges that Google faces are a downside to running a business based on offering free digital services paid for by ads. This model is more vulnerable to economic turmoil than others based on paid subscriptions that people still appreciate in difficult times.
This was especially true for the Netflix video streaming service and the Zoom video meeting service. These two Silicon Valley companies thrived during a crisis that saw millions of people try to find ways to be entertained while still seeing family, friends and colleagues.
Contribution: Jefferson Graham, USA TODAY