Google ad revenue rises 10%, masking slowdown from pandemic

Dive Brief:

  • Google’s total ad revenue including YouTube rose 10% to $33.8 billion in Q1, per its quarterly report. Describing the first three months of the year as a “tale of two quarters,” parent company Alphabet’s CFO Ruth Porat said in a conference call with analysts that advertising sales were strong in January and February before falling in March amid lockdowns on businesses.
  • YouTube’s 33% yearly growth in ad sales to $4 billion was much faster than the 8.7% gain to $24.5 billion in Q1 for Google Search, a more mature business that’s the biggest source of revenue for Alphabet.
  • By the end of March, ad revenue was on course to fall by a “mid-teens percentage” from a year earlier, Porat said, but it showed signs of stabilizing in April. YouTube’s ad revenue growth had slowed but was still in the “high single digits” by the end of March, she said. Alphabet’s total revenue of $41.2 billion beat analyst estimates of $40.3 billion, while earnings of $9.87 a share missed estimates of $10.33 a share, CNBC reported.

Dive Insight:

Google’s parent company Alphabet reported another quarter of advertising growth while warning that the coronavirus pandemic had triggered a sudden slowdown. The commentary from Alphabet’s management provided more insights into how the pandemic had triggered a sudden drop in search ad revenue, while YouTube continued to grow at a slower pace. Encouragingly, the company has seen signs of stabilization this month while warning that it was too early to predict how the current quarter would turn out.

“The decline in our ‘search and other’ ads revenue was abrupt in March, and although we’re seeing some early signs at this point that users are returning to more commercial behavior, it’s not clear how durable or monetizable that will be,” Porat said. “It would be premature to comment on timing given all the variables here.”

The pandemic has been particularly tough on business sectors like travel and restaurants, both of which have been heavy users of search advertising in the past. Even as some social distancing restrictions relax, it’s unclear how soon consumers will return to travel or eating out, which could have an enduring impact on Google’s ad sales revenue as these businesses cut costs like marketing.

Despite the cautious commentary, Google is setting the stage for a possibly strong rebound. The pandemic has led millions of consumers to depend more heavily on its services, including search, shopping, entertainment, distance learning and remote work. Among the highlights cited by Alphabet CEO Sundar Pichai, search activity for information about the coronavirus at its height was four times greater than peak usage during the Super Bowl. The number of students using Google Classroom has doubled since the beginning of March to 100 million, and its Google Meet video calling service jumped 30-fold to more than 100 million users. While it’s too early to tell how long these changes in consumer habits will last, Google is positioned to strengthen its ties to a massive global audience.

YouTube, a key growth driver for the company, experienced a divergence in ad revenue with brands pulling back while direct-to-consumer (DTC) marketers continued to increase their media spending to reach homebound folks. Direct response advertisers maintained higher spending than a year earlier throughout the entire quarter, Porat said.

As for the company’s own marketing efforts, management confirmed it was looking to cut spending for some of its businesses but didn’t provide specific details. Google had considered cutting its marketing budget as much as half in Q2 while enacting hiring freezes for full-time employees and contractors, according to internal documents obtained by CNBC.

Google’s quarterly report confirms some of the results from other companies that depend on digital ad revenue. Snap last week said its revenue jumped 44% to $462.5 million in Q1 from a year earlier as it signed up 11 million more users to Snapchat. The results provided an early indication that most of the first quarter was healthy for digital ad sales, with analysts warning that the current quarter will be more significant in demonstrating the pandemic’s negative effects on marketing activity. Facebook, the second-biggest digital ad platform after Google’s properties, reports quarterly results today, while Amazon and Twitter are scheduled to reveal earnings tomorrow.

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