Google Q1 Earnings Offer Hope Ad Slump Won’t Be As Bad As Some Expect

On April 29, Google reported Q1 earnings, which beat analysts’ revenue expectations that were partially moderated by the COVID-19 pandemic. Google announced $41.16 billion in revenue compared with the $40.3 billion expected.

Ruth Porat, the CFO of Google’s parent company, Alphabet said “Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues.” Based on strong performance during the first two months, revenue was up 13% year over year, although earnings per share went down.

The revenue breakdown for key segments:

  • Search and other ad revenue: $33.76 billion
  • YouTube ad revenue: $4.04 billion
  • Cloud-based revenues: $2.78 billion
  • Traffic acquisition costs: $7.45 billion

Even though ad revenue on YouTube was up over 33% year over year, it went down 14% sequentially. Advertising still constitutes 82% of Google’s total revenue.

There are several ways we could react to Google’s earnings report:

  1. It could have been much worse or
  2. This confirms that the industry faces a major ad slump or
  3. Google, Facebook and Amazon will be ok, others not so much.

Ad forecaster eMarketer characterized the results as “in line with our relatively optimistic scenarios for digital advertising in Q1.”

Indeed, some people are putting a very positive spin on the company’s earnings. Wall Street also likes the results and Google’s stock is up in after-hours trading.

eMarketer revised its ad forecast in March in order to account for anticipated revenue declines, although it still expects spending to grow this year by 7%. Others, including Magna Global, expects 2020 ad spending to shrink. eMarketer and Magna Global believe ad spending will be coming back in the second half.

SourceGreg Sterling

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