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Usage of Google products has surged but advertising revenue is expected to fall further

Courtesy: Google Press Corner

Google parent Alphabet’s revenue has largely come from ad revenues — and now that’s a sector that has been wiped out by the pandemic. With the acceleration of the COVID-19 worldwide in March, people began using Search more, but queries revolved around the pandemic, and other non-commercial topics: coronavirus-related search activity at its peak was four times greater than during the peak of the Super Bowl. As a result, Google’s overall ad revenue fell 10.8% over the previous quarter, even with the downturn beginning at the fag-end of the quarter.
“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues,” CFO Ruth Porat said. And it’s going to get worse: “We anticipate that the second quarter will be a difficult one for our advertising business,” she added on the investor call. “As we move beyond the crisis and the global economy normalizes, this should be reflected in our advertising revenues…” she said. “We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities,” she said.
YouTube ad revenue was impacted harder, falling by 14.7% QoQ. Alphabet said growth persisted till late this quarter; direct response continued to have substantial growth throughout the quarter, but brand advertising slowed down in mid-March. YouTube ads did grow 33% YoY. YouTube Kids has been launched in 15 new countries in 2020. Watchtime has increased across the board and viewership on YouTube has increased significantly compared to last year, across North America, EMEA and Asia-Pacific, the company said. The COVID-19 information panels on YouTube have 20 billion impressions, and news viewership has surged 75% YoY.

  • Google said it will help that its revenue streams are more diversified than in the 2008 recession. Google Cloud grew 50% YoY and 6.2% QoQ, driven largely by Google Cloud Platform, and G Suite. “We’re pleased with the ongoing growth in G Suite, which continues to reflect growth in both seat count and average revenue per seat.” G Suite now has 6 million paying customers. A growing part of the Cloud division is Google Meet, which is now free for all users. As workplaces become remote, Meet has seen an unprecedented 30x increase in usage since January. It has 100 million daily users, and 3 million new users coming on the service daily.
  • As people are spending more time indoors than ever before, PlayStore downloads jumped 30% in March over the previous month. There are 2.5 billion monthly active Play device users. “Within Play, app revenues continued to benefit from strong growth in the number of active buyers in the first quarter. In addition, in the latter part of the quarter, we started to see an increase in user engagement in apps, as well as in digital content,” Porat said.
  • Google Classroom has 100 million users and the demand for Chromebooks have increased 400% YoY.

Google has already revamped Meet and allowed small businesses to list their product inventory on Google Shopping for free. It is leveraging a crisis to show that its products can be useful, and would cash in on them later. In theory, allowing listings for free on Shopping mean more ad spend, as the services still allows businesses to pay for higher placement in search results. One of the reasons that Search will be able to bounce back from is that it can be adjusted quickly, “so it’s relatively easier to turn off and then back on, and marketers see it as highly cost-effective and ROI based”, Pichai told investors.
In a regulatory filing with the SEC, Alphabet said it is reevaluating the pace of investment plans, including, hiring, investments in data centers, servers, network equipment, real estate and facilities, and marketing and travel spending. Google said the highest-level opportunities lie in businesses shifting to digital: “people who in the past may have debated things like how do I get virtual showrooming now are really thinking about it. People who may have been hesitant to shift their budgets are looking through moments like this and trying to get all that working better. Cloud is an obvious area. Every company has been thinking about digital transformation, but they are asking the questions deeper.”

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Press Release | Earnings Call Transcript | 10-Q SEC Filing

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