Google has suffered its first recorded revenue decline, as the coronavirus crisis wiped 8 per cent from advertising income in the latest quarter and depressed parent company Alphabet’s revenues by 2 per cent from the year before.

Despite the unprecedented fall-off in its core business, however, Google executives said conditions had improved as the quarter progressed, and offered cautious optimism for a return to growth in the current period.

Sundar Pichai, chief executive, said Google had seen “the early signs of stabilisation, as users returned to commercial activity online.”

Ruth Porat, chief financial officer, added that the search advertising business had ended the quarter with revenue roughly flat compared with the previous year, and had also seen “a modest improvement” in July.

The advertising business is closely tied to the broader economy, she added, and “fragile” conditions left the outlook uncertain in the months ahead.


25%


Increase in Alphabet shares over past three months

Google’s advertising is heavily dependent on small and medium-sized businesses, which have been the hardest hit in the downturn.

The advertising decline was partially offset by a 6 per cent increase at YouTube, where some improvement in demand for brand advertising lifted revenue to $3.8bn.

The company’s cloud business also posted a 43 per cent jump in revenue, to $3bn. Though the performance echoed the gains reported by other cloud computing companies during the pandemic, the growth was still lower than the 52 per cent of the preceding three months, and below most expectations.

Google missed out on the pandemic-fuelled bounce at rival Amazon in the latest quarter because its cloud business is far smaller than Amazon Web Services, while repeated attempts to boost its position in online commerce have failed to gain traction. Mr Pichai said he was confident its latest efforts, under a new management team, would yield “long-term” results.

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The company’s executives said three months ago that Google had started the second quarter with advertising revenue suffering a “mid teen year-on-year decline”. But they also surprised investors at the time with the news that they were seeing the first signs of stabilisation in search advertising.

Big tech’s big earnings day

Since then, Alphabet’s shares have risen 25 per cent, nearly double the rise in the broader US stock market. After the results news, the price was up less than 1 per cent.

Alphabet — which counts on Google for more than 99 per cent of its revenue — reported gross revenue in the latest period of $38.3bn. Net revenue, after deducting traffic acquisition costs, fell less than a percentage point, to $31.6bn.

Earnings per share declined 29 per cent, to $10.13, as costs rose 7 per cent, despite a company-wide moratorium on all but essential hiring.

Most analysts had expected Alphabet’s net revenue to fall 4 per cent to $30.5bn in the latest quarter, with earnings per share dropping to $8.34. They had also forecast a return to growth in the third quarter, with revenues expected to rebound nearly 3 per cent and earnings per share up 6 per cent.

Via Financial Times