Alphabet stock rises more than 7% as ad slowdown turns out to be less than feared

Google CEO Sundar Pichai

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Alphabet shares rose as much as 4% in extended trading on Tuesday after the company reported earnings for the first quarter, during which the coronavirus spread globally.

Here’s how the company did:

  • Earnings: $9.87 per share, adjusted
  • Revenue: $41.16 billion
  • Cloud revenue: $2.78 billion
  • YouTube advertising revenue: $4.04 billion
  • Traffic acquisition costs: $7.45 billion

Alphabet’s revenue growth rate slowed to 13% in the quarter from 17% one quarter earlier, according to a statement. Advertising still makes up the vast majority of Alphabet’s total revenue, at 82%.

Analysts surveyed by Refinitiv had expected $10.33 in adjusted earnings per share on $40.29 billion in revenue. Analysts polled by FactSet had expected $7.51 billion in traffic acquisition costs in the quarter. However, comparing Alphabet’s actual results with estimates isn’t straightforward given the difficulty of predicting the impact of the coronavirus.

“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues,” said Alphabet’s chief financial officer Ruth Porat. “We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.”

Google’s “other revenue,” which includes hardware like its Pixel phones and cloud products, came in at $4.44 billion, compared to $3.62 billion in the same quarter a year ago.

Revenue from “Other Bets,” which includes Alphabet’s self-driving car business Waymo as well as life sciences company Verily, came in at at $135 million compared to $170 million in the same quarter the year prior.

Google’s total advertising revenues rose to $33.76 billion from $30.59 billion the prior year.

Travel companies like Expedia Group and Booking Holdings normally spend heavily on Google search ads, since so many travelers search for trips with terms like “flight to London” or “hotel in San Francisco.” But Expedia recently said it normally spends $5 billion on ads, but that it probably “won’t spend $1 billion” this year. Similarly, Booking could slash Google ad spending on Google from about $4 billion in 2019 to $1 billion to $2 billion this year, Mark Mahaney, an analyst at RBC Capital Markets, predicted.

Ahead of the report, analysts had expected Alphabet’s second quarter to be the worst impacted as advertisers began pulling back toward the end of the first quarter.

The company has begun to put some cost-cutting measures in place. Last week, CNBC reported that the company is cutting marketing budgets by as much as half while placing freezes on various parts across the company. It also told employees that it would be pulling back investments on from data centers and educational resources for workers. By contrast, the company’s headcount, which is the largest driver of R&D expenses, grew by 4,903 employees in the fourth quarter, a 20% increase from the year prior.

This is breaking news. Check back for updates.

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