Google Q1 earnings offer hope ad slump won’t be as bad as some expect
Google reported Q1 earnings this afternoon, beating analysts’ revenue expectations that were partly moderated by the COVID crisis. The company announced $41.16 billion in revenue compared with $40.3 billion expected.
Significant slowdown in March. Alphabet CFO Ruth Porat 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, while earnings per share were down. Here’s 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
Ad revenue on YouTube was up more than 33% year over year but down 14% sequentially. Advertising still constitutes 82% of Google’s total revenue.
Positive spin. There are different ways to react to Google’s earnings report: a) it could have been much worse or b) this confirms that the industry faces a major ad slump or c) 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.
In March eMarketer revised its ad forecast to account for anticipated revenue declines, but still expects spending to grow this year by 7%. Others, such as Magna Global, expect 2020 ad spending to shrink. But both eMarketer and Magna Global said they believe ad spending will come back (to varying degrees) in the second half.
Why we care. Marketing budgets were disrupted in March, as reflected in Google’s earnings. But, historically, paid-search has been more “recession-proof” than other forms of digital advertising. We won’t truly know until later in the year.
The key to recovery is consumer spending and confidence in the economy. If consumers begin to spend again that will trigger more investments by advertisers. For now, Google’s Q1 results are something of an ink blot that can support both bullish and bearish views of the rest of the year.
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