Google’s parent company, Alphabet Inc, revealed on Tuesday that the decline in ad sales it experienced due to the coronavirus pandemic has stabilized in April. This unexpected news buoyed the company’s shares by 8%, indicating that some consumers have returned to using Google for shopping and information on the novel coronavirus. Financial and advertising analysts had previously estimated that ad sales could decline by up to 20% in the coming quarters.
The drop in revenue from search ads, which is Alphabet’s most lucrative business, did not worsen in April. In fact, the company is actively working to attract advertisers who typically sponsor sporting events that have been canceled due to the pandemic. Despite the challenging economic conditions, Alphabet’s Chief Executive Sundar Pichai stated that engagement from advertisers has remained robust.
While the first-quarter results were in line with relatively optimistic scenarios, Alphabet’s Chief Financial Officer Ruth Porat cautioned that the second quarter could present challenges. However, analysts remain cautiously optimistic about the current quarter.
Alphabet’s overall revenue in the first quarter was $41.2 billion, a 13% increase compared to the same period last year, surpassing the average estimate of $40.29 billion among financial analysts. These strong results provide valuable insights into what other major U.S. internet services companies may report in the coming days.
The coronavirus pandemic has had both positive and negative impacts on Google’s business. On one hand, the company’s tools such as Duo video chatting and YouTube have become essential for many users. However, Google primarily generates revenue through selling ad tools and ad space on its services, which has suffered due to decreased consumer spending. In the first quarter, Google’s ad sales reached $33.8 billion, with 73% coming from search ads and 12% from YouTube.
Despite the challenging economic conditions, YouTube’s revenue grew 33.5% in the first quarter, slightly faster than the previous quarter. The company did not disclose the number of paid YouTube subscribers. Additionally, Alphabet’s cloud business experienced a 52% increase in revenue from a year ago, generating $2.8 billion. However, the company has offered extended free services to support customers impacted by the pandemic.
Alphabet’s total costs and expenses rose by 12% from the previous year, reaching $33.2 billion, although this increase is smaller compared to recent quarters. The company has implemented spending adjustments, including reduced hiring, marketing, and office expansions.
Alphabet reported a first-quarter profit of $6.8 billion, or $9.87 per share, slightly below analysts’ average estimate of $7.21 billion, or $10.40 per share. The positive performance of ad sales and the steady profitability of the company’s various business segments in challenging circumstances can be attributed to Alphabet’s ability to adapt and respond to the current environment.