Alphabet flags first signs of recovery

Google revealed that its internet search business stabilised in April after a sharp downturn at the end of last month and has already seen the first signs of a recovery, lifting its shares by around 8 per cent in after-market trading on Tuesday.

The surprisingly upbeat remarks from the internet company’s executives came after its parent company, Alphabet, reported a sharp slowdown in first quarter revenue growth due to the coronavirus crisis.

Sundar Pichai, chief executive officer, said it had been a “tale of two quarters”, as a strong performance in January and February gave way to a sudden drop in search engine advertising that matched the economic shutdown at the end of March.

Ruth Porat, chief financial officer, said the downturn had left Google with a “mid-teen year-on-year decline in revenue” by the end March, pointing to a contraction in the second quarter. 

However, she also said that this month, the company had seen “some signs users are returning to more normal behaviour” in search. Although she added that it was too soon to say whether this trend would last throughout the quarter, Ms Porat said: “We haven’t seen further deterioration.”

33% Revenue growth on YouTube in first quarter

Google’s latest quarterly figures also showed that some parts of its business had proved more resilient than expected to the downturn.

Revenue on YouTube grew by 33 per cent — two percentage points more than the preceding quarter, when it first disclosed financial details for the video site — as strong demand for direct response forms of advertising at the end of March offset a fall-off in brand advertising.

At the same time, Google’s cloud business maintained its 52 per cent growth rate from the preceding three months, and Mr Pichai predicted that it would continue to do well during the Covid-19 crisis as businesses relied more heavily on digital services like advertising and cloud computing. 

“Companies all the way to CEO are thinking about the shift to digital in a deeper way,” the Alphabet CEO said.

The upbeat comments came after Alphabet reported that its revenue growth slowed to 13 per cent, compared to 18 per cent in the final months of 2019. For the second quarter, most analysts had been expecting the company to suffer its first-ever revenue contraction.

The revenue slowdown was slightly less severe than Wall Street had expected, and Nicole Perrin, an analyst at eMarketer, said they supported a “cautiously optimistic” view that the second quarter would not be as bad as some had feared.

The internet holding company reported gross revenue of $41.2bn, compared to $36.3bn a year before, and earnings of $9.87 a share. A year ago it reported earnings of $9.50 a share, after taking a $2.40 a share hit from a fine in the EU.

Mr Pichai told Google workers earlier this month that the company was stopping all but the most essential hiring in an attempt to hold costs down in the face of an expected advertising slump. The company had earlier predicted it would boost its workforce this year at even faster pace than in 2019, when headcount went up 20 per cent.

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