Google's parent company Alphabet Inc announced first-quarter results yesterday, stating that performance was in line with expectations until March when ad revenues slowed down.
The business still saw a 13% growth for the quarter, compared with last year, when combining the results of its search, Youtube and Cloud business, but the slowdown in ad revenue in March due to Coronavirus was “sudden and significant”.
Sundar Pichai, chief executive of Alphabet and Google, explained the results on the firm's earnings call, explaining that it had started 2020 strongly.
“Q1 was in many ways the tale of two quarters, for our advertising business, the first two months of the quarter were strong. In March, we experienced a significant and sudden slow down in our advertising revenues.
"The timing of the slowdown, correlated to the locations and sectors impacted by the virus and related shut down orders. As the impact of Covid-19 came into view, we delayed some ad launches and prioritised supporting our customers, as many adjusted their strategies,” he explained.
Pichai said that a return to normal levels of ad spend would depend on wider economic factors.
“Overall, recovering advertising spend will depend on a return to economic activity. There are two key aspects of our business that give us confidence about the future. First, as we saw after 2008, one of the strongest features of search is that it can be adjusted quickly, so it is relatively easier to turn off and back on and marketers see this as being highly cost-effective and ROI-based. Second, our business is more diversified than it was in 2008. For example, Cloud,” he added.
Despite the slowdown in growth, Alphabet stock prices rose on Wednesday (29 April) because the decline was less severe than the markets had feared. For its part, Google saw growth across all its categories (albeit at a much lower level) despite the economic uncertainty across the globe.
Google’s total advertising revenues rose to $33.76bn during the quarter, from $30.59bn the prior year:
EMarketer principal analyst, Nicole Perrin, commented on the results: "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 Coronavirus starting in mid-March or later, but not as severe as it could have been.
"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. That suggests a cautiously optimistic outlook for Q2 -- though growth will come in worse than Q1 as a whole since Q1 impacts were limited to the end of the quarter."
Google said usage of its services as a whole had grown, with more people searching than ever. Pichai said that at its peak, searches around Coronavirus were four times higher than that around the Superbowl. Likewise, the usage of Youtube has also increased.
The challenge for Google, and many free or ad-supported digital services throughout Q2 and beyond will be managing the costs associated with these increased levels of usage against a decline in advertising revenue.