Alphabet shrugs off advertising “slowdown” as Q1 revenue beats expectations

By Robert Scammell

Google parent company Alphabet has reported revenue of $41.16bn for the first quarter of 2020, beating analyst expectations amid a “significant” slowdown in advertising revenue due to the coronavirus pandemic.

The tech giant reported adjusted earnings per share of $9.87, falling below Wall Street expectations of $10.38. However, its revenue beat expectations and was up 13% from $36.34bn a year ago. After subtracting traffic acquisition costs – payments Google makes to affiliates and online companies – Alphabet’s revenue stood at $33.7bn.     

Alphabet draws the lion’s share of its revenue from advertising via Google and YouTube. For Q1, combined advertising sales accounted for 82% of Alphabet’s total revenue. Analysts had feared that businesses reigning in ad spend during the Covid-19 pandemic would dent the revenue of the world’s largest digital advertiser.

In a statement, Alphabet CFO Ruth Porat said that the US firm “experienced a significant and sudden slowdown in ad revenue” in March.

“We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities,” she added.

Alphabet Q1 revenue: Advertising drop could have been worse

Last quarter Alphabet opted to provide a breakdown of YouTube advertising revenue for the first time. This quarter it stood at $4.04bn, down from $4.72bn in Q4 2019.

“Google reported a significant deceleration in search ad revenue growth to single digits, which suggests a serious hit to the growth of their search business due to Covid starting in mid-March or later, but not as severe as it could have been,” eMarket principal analyst Nicole Perrin told Forbes.

“The deceleration to Google’s display ad businesses, including Google Display Network and YouTube, was lower, and again fell in line with our relatively optimistic scenarios for digital advertising in Q1.”

Alphabet’s cloud business, which has struggled to steal market share from rivals Amazon Web Services and Microsoft Azure, brought in $2.78bn for the quarter. It is up 52% from the previous quarter, but that is the first quarter Alphabet made that granular level of detail available.

Google’s secretive research division, appearing as “Other Bets” on its balance sheet, generated less revenue year on year, slumping to $135m from $170m. The division, which encompasses its autonomous vehicle unit and internet-beaming helium balloons, saw operating losses rise from $868m to $1.12bn.

Shares of Alphabet rose around 2.8% in after-hours trading.

Read more: Strong Intel Q1 earnings overshadowed by coronavirus uncertainty

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