Call it a tale of two quarters – or, more specifically, a quarter that can be divided into “before coronavirus” and “during coronavirus.”
Alphabet, the parent company of Google, gave several gives and takes for its first quarter ending March 31, showing the tailwinds of strong consumer demand for mobile tech hardware and apps, and a strong start, tempered by headwinds, in parts of its core advertising business.
In terms of headline numbers, the company said that first-quarter consolidated revenues were up 13 percent year over year to $41.2 billion, better than consensus estimates by about $990 million.
CEO Sundar Pichai and Chief Financial Officer Ruth Porat said during the conference call with analysts that the quarter’s first two months had tracked well, showing strong growth. Still, March showed a significant decline as the impact of the pandemic became more widespread, with March showing a sharp downturn in advertising-related top line.
Perhaps not surprisingly, as detailed on the call (Pichai noted this was the first pandemic “taking place in a digital world,”) coronavirus-related searches were prevalent. In terms of scale, management said coronavirus- related searches were four times greater than peak Super Bowl search activity.
To get a sense of how advertising search-related revenues suffered by comparison, Porat noted that those revenues were down by double-digit percentages in March.
Drilling down into the numbers, YouTube revenues were up 33 percent year on year to $4 billion, while total advertising revenues came in at $33.8 billion, up from $30.6 billion last year.
Other revenues, which house YouTube subscriptions, Pixel and hardware sales, were up 22 percent year on year to $4.4 billion. And “Other Bets,” which covers the company’s Waymo self-driving offering and a life sciences operations — was $135 million, bleeding out more cash, to an operating loss of $1.1 billion.
Appetite For Apps And Meetings
Pichai said during the call that said that there more than 2.5 billion monthly active Google Play devices worldwide and that app downloads also gained ground, up 30 percent as measured between February to March.
There are over 6 million customers paying for G Suite, he said.
Google Meet, the teleconferencing service, has seen what Pichai said was “a significant milestone” passed last week, where the firm is adding about three million new users each day.
The increase since the first month of the year has been 30-fold, he said, and there are now more than 100 million daily Meet participants. The latest, three million daily tally indicates a quickening of pace since earlier in the month, when the company had been adding two million users daily.
One place where Google saw device interest soar was in the Chromebook segment; Pichai said that analysts saw a 400 percent increase in Chromebook demand the week of March 21st compared to the prior year. Similarly, Google said that 100 million students and educations used its Classroom education tools, double what it saw at the beginning of March.
He said that there were reasons to be confident about future prospects, in part due to the company’s diversification into a range of business lines.
During the question and answer session, Pichai said the company is examining the continued shift to digital, as advertisers target offerings including digital showrooms, and businesses, in general, are looking toward the cloud.
“We are recalibrating the focus and pace of our investments,” he said.
Porat said that there had been a sharp decline in advertising revenues in March as governments mandated stay at home orders.
“At the same time, even through March,” she said, “our non-advertising revenue lines maintained a strong performance – particularly Google Cloud.” Revenues in the cloud segment, at $2.7 billion, were up 55 percent.
Cloud growth, she said, was led by infrastructure offerings and the data and analytics platform, with growth seen in average revenue per seat.
Cloud is seeing growth in the public sector and healthcare, disease monitoring and control. Google Cloud Platform revenue growth outpaced the overall segment’s growth.
In a bit of granular detail, she said that the decline in the Asian Pacific region was more “muted” than what has been seen in the rest of the world, given the “uneven impact of COVID-19.” The impact in the rest of the world began later in the quarter, she noted.
Although users’ search activity increased, said Porat, that activity shifted to less commercial topics. There as also reduced spending by advertisers, she said.
Significant YouTube revenue growth persisted until late in the first quarter, she said. Direct response continued to have year-on-year growth throughout the entire quarter, while branded growth was marked in the first two months of the quarter but began to experience a headwind in mid-March.
She said that there had been early signs of recovery in commercial search, but noted that it still remained unclear whether such activity is “durable or monetizable.”
Asked about the ad business thus far in the quarter, Porat said a key determinant remains the macroenvironment. It is also premature to gauge the second quarter trends, she said, though she noted that the current period would be a difficult one for the company’s core ad business.
“A few weeks is not a quarter,” she said on the call, “and in such an unprecedented crisis, I would not want to extrapolate from just a couple of weeks.”
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