Google's parent company Alphabet reported a slowdown in first-quarter revenue growth, as the Covid-19 pandemic led to a drop in advertising on the search engine from March. Revenues rose 13 percent year-on-year to USD 41.2 billion, down from 17 percent annual growth a year earlier and in Q4. Google confirmed it would slow hiring and capex in response to the weaker economic climate.
The company's operating profit still grew 21 percent to USD 8.0 billion, led by expansion at Google. The company's 'other bets' generated a loss of USD 1.1 billion, widening from a loss of USD 868 million a year ago.
Alphabet's net profit improved 3 percent to USD 6.8 billion or USD 9.87 per share. On an adjusted basis, excluding the EU fine in Q1 2019 results, net profit fell 18 percent year-on-year.
CEO Sundar Pichai said the first two months of the quarter were strong, but in March, there was a "significant and sudden slowdown in ad revenues". The weaker ad spending correlated to the locations and sectors impacted by the virus and related shutdown orders.
A recovery in ad spending will depend on the resumption in economic activity. Pichai noted that advertisers find it relatively quick and easy to turn search ads back on, so when the recovery comes, Google should benefit quickly. Furthermore, the company's business is more diversified than it was during the last recession in 2008, with growth coming now from cloud services (+52% in Q1), Gsuite and YouTube subscriptions, and hardware such as the just released Pixel Buds 2.
The CEO confirmed an earlier leaked email to staff on plans to slow the pace of hiring for the rest of 2020, "while maintaining momentum in a small number of strategic areas". The company is also "recalibrating the focus and pace" of investments in areas like data centers and machines, as well as non-business essential marketing and travel. The 'other bets' are also turning to outside support, such as Waymo recently raising USD 2.25 billion in its first external investment round.
