tech

Alphabet’s revenue fell for first time ever as Covid hit ads

Ad sales, which make up the bulk of sales at the Google parent, were $29.9 billion in the second quarter, down 8.1% from the same period last year.

Sundar Pichai, Chief Executive Officer of Alphabet, at the 50th World Economic Forum in Davos, Switzerland, January 22, 2020.
Sundar Pichai, Chief Executive Officer of Alphabet, at the 50th World Economic Forum in Davos, Switzerland, January 22, 2020. (REUTERS)

Alphabet Inc.’s revenue growth machine ground to a halt for the first time in the company’s two-decade history, stopped by the coronavirus pandemic and ensuing economic fallout that forced advertisers to pull back spending.

Ad sales, which make up the bulk of sales at the Google parent, were $29.9 billion in the second quarter, down 8.1% from the same period last year. That’s the lowest they’ve been since the third quarter of 2018 and the first-ever decline. The slide was a stark contrast to digital advertising rival Facebook Inc., which saw overall revenue grow 11% in the quarter.

But Google’s ad sales were picking back up again by the end of the quarter, Chief Financial Officer Ruth Porat said on a conference call. And growth at YouTube and Google’s cloud business continued to be relatively strong. Shares inched higher in extended trading.

“We are cautiously encouraged by our results,” Porat said, adding that “it’s premature to say that we’re out of the woods.”

Google’s giant advertising business had already begun to slow well before the pandemic. Investors are increasingly interested in the prospects of smaller but faster-growing units. Cloud revenue rose 43% from a year earlier to $3 billion, while YouTube grew 6% to $3.8 billion, partly thanks to more people staying home due to lockdowns, Porat said. Overall, revenue fell 2% and was $31.6 billion excluding fees paid to partners, the Mountain View, California-based company said in a statement.

The pandemic has boosted the case for cloud services, which help people work remotely, but the looming recession also means companies are hesitant to spend freely on new software and infrastructure.

“Overall I felt the momentum was strong” in cloud, Chief Executive Officer Sundar Pichai said. Rival Amazon.com Inc.’s cloud unit, which is much bigger than Google’s, grew 29% to $10.8 billion in the quarter.

Google shares, which have gained 15% this year, rose about 0.5% in extended trading following the report. They closed at $1,538.37 in New York.

Spending and hiring will continue for the cloud business, Porat said. Google brought on around 4,000 new workers during the quarter, about the same as it did in the same period a year ago, despite saying earlier this year it would slow hiring. Google ended the quarter with 127,498 employees, up 18% from the quarter a year earlier.

When it comes to new real estate, though, Google did cut back. Porat said the company would “reimagine” what their future workspaces would look like while most employees continue to work remotely. On Monday, Google said workers could stay home until July 2021 if they wanted to.

The spending cuts weren’t enough to stop net income from falling 30% to $6.96 billion. Earnings per share were $10.13, compared with $14.21 last year.