Google reported its weakest revenue growth in nearly five years in the first quarter as the pandemic-driven recession began to shrivel its advertising sales.
“It was the tale of two quarters,” Sundar Pichai, Google’s chief executive, told investors on a conference call on Tuesday. Typically – strong revenue growth in January and February was undercut by a “significant and sudden slowdown in advertising” in March, he said. “When I last spoke with you, no one could have imagined how much the world would change – and how quickly.”
The January-March earnings for Google’s parent Alphabet offer a first look at how the digital ad market has fared amid widespread orders requiring consumers to stay at home. Those restrictions have given most advertisers little incentive to market their products and services.
It’s an incomplete picture because ad demand in most parts of the world wasn’t hit hard until late February and early March. That’s when the coronavirus outbreak accelerated and governments imposed lockdowns to fight it.
Alphabet’s first-quarter revenue increased 13% from the same time last year to $41.2bn. While most companies would celebrate that kind of growth, it’s a significant slowdown for Google, which has regularly generated quarterly revenue gains of 20% to 25%.
The company’s revenue growth hasn’t been this low since the summer of 2015. That was before Google created Alphabet as a new holding company for itself and a hodgepodge of more risky tech ventures.
The performance was still slightly better than the revenue of $40.8bn projected by analysts surveyed by FactSet Research.
Alphabet earned $6.8bn during the quarter, a 2% increase from last year. The company’s stock climbed 3% to $1,269.50 in extended trading.
Ruth Porat, Google’s chief financial officer, warned that the greatest pain was still to come, with the company anticipating that the next quarter will be “a difficult one”. The company will slow some of its hiring and “moderate the overall pace of investment”, Porat said.
“We already knew traditional newspaper and TV advertisers had seen revenues evaporate, and while Google has fared better than many it looks like tough times could be coming for the world’s largest search engine,” said Nicholas Hyett, an equity analyst at Hargreaves Lansdown. “The next few months could be a salient reminder that the global tech giants are not immune to the fortunes of the wider economy.”
Analysts project no growth in revenue for the company in the second quarter, which would be unprecedented for the company. Google’s worst quarter so far came during the second quarter of 2009, amid the Great Recession, when revenue grew just 3%.
The coronavirus pandemic has nevertheless provided opportunities for Google, with huge shifts toward remote working and learning increasing demand for the company’s products.
“This is the first major pandemic taking place in the digital world,” Pichai said, noting that some parts of the economy have been able to continue “with some amount of normality”.
The number of students and teachers using Google Classroom doubled over the course of March to 100 million, Pichai said. Google Meet, the company’s Zoom-competitor, is adding 3 million new users each day. And the company’s cloud computing division remains strong, he said.
