Alphabet sales drop for first time on Google ad cutbacks in pandemic

Alphabet sales drop for first time on Google ad cutbacks in pandemic

Google parent Alphabet Inc beat Wall Street estimates for quarterly revenue on Thursday, as more advertisers tapped the world's most used internet search engine to reach potential customers during the COVID-19 pandemic.

Google extends work-from-home order to summer 2021
After the company announced it would extend its coronavirus work-from-home order until summer 2021, a Google sign is shown at one of the company's office complexes in Irvine, California, U.S., July 27, 2020. REUTERS/Mike Blake

OAKLAND, Calif./BENGALURU: Google parent Alphabet Inc's quarterly sales fell for the first time in its 16 years as a public company, but the 2per cent slide was less than expected as many advertisers stuck with the world's most popular online search engine during the pandemic.

Shares of Alphabet were about flat at US$1,538.37 after it released the second-quarter results, above this year's pre-pandemic high of about US$1,525.

With its mostly free tools for web browsing, video watching and teleconferencing, Google has become a larger part of many consumers' lives during the pandemic as lockdown orders force people to rely on the internet for work and entertainment.

But advertisers on Google have suffered mass layoffs and other cutbacks during the pandemic, and marketing budgets are often the first to get slashed especially by big clients like travel search engines, airlines and hotels.

Google's ads business has long trended with the broader economy, and the U.S. economy contracted at its steepest pace since the Great Depression in the second quarter, the Commerce Department said on Thursday.

Google appeared to weather the slowdown better than before, as the pandemic has made the internet more attractive to advertisers than TV, radio and other avenues.

"This quarter, we saw the early signs of stabilization, as users returned to commercial activity online," Alphabet Chief Executive Sundar Pichai told analysts on Thursday. "Of course, the economic climate remains fragile." Alphabet's overall second-quarter revenue was US$38.3 billion, down 2per cent from the year-ago period. Analyst's tracked by Refinitiv, on average, had estimated a 4per cent decline to US$37.367 billion.

The sales decline was the first since the company went public in 2004 and the worst performance since its 2.9per cent growth during the Great Recession in 2009.

About 66per cent of Alphabet's revenue came from Google search and YouTube ads, 12per cent from ads sold on partner properties online, 8per cent from its cloud business and 14per cent from its mobile app store and about a dozen other smaller businesses.

It has adjusted by slowing expense growth. Alphabet's total costs and expenses rose about 7per cent from a year ago to US$31.9 billion in the second quarter, compared with a 12per cent jump a quarter ago.

Alphabet's quarterly profit was US$6.96 billion, or US$10.13 per share, compared with the analysts' average estimate of US$5.645 billion, or US$8.29 per share.

New data privacy laws, including one that went into effect this month in Google's home state of California, are also depressing ad prices.

Antitrust regulators across the Americas, Europe and Asia are weighing whether Google has stifled competition on its way to dominating search, mobile software and other businesses, with some bodies even considering forcing it divest parts of its ad operations.

About 2,000 employees last month petitioned Google's emerging cloud business to scuttle deals with some police agencies, citing racial discrimination concerns. And whether a massive hiring spree will win other cloud clients is uncertain.

(Reporting by Paresh Dave in Oakland, Calif. and Munsif Vengattil in Bengaluru; Editing by Shailesh Kuber and Richard Chang)

Source: Reuters