The coronavirus pandemic has not affected Alphabet Inc.’s GOOG GOOGL advertising revenue as sharply as expected, while YouTube and Google Services use escalated during the first quarter.
Markets Cheer Good News
Alphabet’s shares rose sharply in the after-hours with Class A and C shares surging 7.98% and 7.65% to $1,331 and $1,328 respectively as company executives conducted the earnings conference call.
Even though Alphabet announced budget cuts, the search engine giant delivered some good news on their first-quarter results Tuesday. Earnings stood at $9.87 per share, and revenue at $41.16 billion. Alphabet’s revenue exceeded expectations set by Refinitiv, but not on EPS.
There was more good news in store for investors during the Q&A session in the conference call with CEO Sundar Pichai, and CFO Ruth Porat, shedding more light on Q1 and the first two weeks of Q2. While warning of a “difficult” quarter ahead, the executives provided a more detailed picture.
The Worst May Be Over For Alphabet
“Based on our estimates from the end of March through last week for Search, we haven’t seen further deterioration in the percentage of year-on-year revenue declines,” said Porat highlighting the situation with advertising revenues in April.
She admitted to an “abrupt” drop in ad revenues in March. While not promising durability in the bounceback of user behavior, Porat said, “We’re seeing some early signs at this point that users are returning to more commercial behavior.”
YouTube Ads Did Well
Advertising revenue from YouTube stood at $4.04 billion, higher by 33% year-on-year, with strong growth observed until mid-March, when COVID-19 spread globally.
Direct response advertising, which encourages viewers to take specific actions, saw considerable year-on-year growth through the quarter. However, brand advertising suffered a decline.
Stay-At-Home Orders Spurring Reliance On Google Services
The pandemic has led to a behavioral change among users who hitherto for were not consumers of Google’s services. The coronavirus was on everyone’s mind leading to a marked increase in search activity, which peaked. up to four times during the Super Bowl, according to Pichai.
Android app downloads rose 30% from February to March, while the popularity of YouTube also surged. Pichai revealed that already 100 million students and educators are using Google Classroom, double the number in March.
Search Will Bounceback Rapidly
According to Google CEO, search advertising is an “extraordinarily effective system” because it is “transparent.” Advertisers can observe results directly and make changes rapidly.
“You have a very clear sense of ROI. It’s very measurable, highly cost-effective.” Pichai pointed out that after the 2008 financial crisis, the recovery in search advertising was fast-paced.
Costs Are Under Control
Capex overall is expected to register a “modest decrease” this year, as the company takes measures such as shrinking global office space and slowing the pace of both real-estate purchases and construction, according to Porat.
Headcount, which was projected to grow by 20%, will likely see a deacceleration, in the third quarter. Porat confirmed Alphabet’s plans to cut back on marketing budgets and promotional spending as events stand canceled for most of the year.
Share Buybacks To Go Ahead
Porat announced that Alphabet’s buybacks would continue, helping stock price as EPS shoots upwards. Porat reaffirmed what she had said at the beginning of 2020, “I indicated that we expected to repurchase shares at a pace at least consistent with the fourth quarter on the remaining authorization, and that remains our view for the second quarter.”
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