After equity markets closed yesterday afternoon in the US, Google kicked off earnings season for big tech companies, by announcing their performance for Q1. The parent company for Google, Alphabet announced that the group recorded sales of $33.71 billion. This number is a 14% rise from the same period a year ago.
This number which was ahead of market expectations saw the share price rise by over 7% in out of hours trading, could this now continue when markets open in the US this afternoon? That is the question that many are now asking.
Some key takeaways from the report was the non-search related performance. YouTube, which was a key acquisition by Google in 2006, saw it’s revenue jump by 33.5%, in addition to this Google Cloud’s sales numbers also grew by a whopping 52%.
The coronavirus pandemic has meant those now at home are limited in outside activity, and as a result looking towards online media for entertainment. However as user engagement has grown, ad revenue dropped by 10% from a year earlier and attribute this to non-online businesses cutting marketing expenses as businesses begin to tighten their proverbial belts.
Regarding the news, CEO of Alphabet Ruth Porat in a call to investors stated,“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues.”
She then went on to add that, “At the inception of the crisis, the increase in user interest was for information about COVID-19 and related non-commercial topics. Although we have seen some very early signs of recovery in commercial Search behavior by users, it is not clear how durable or monetizable this behavior will be.”
Google who have been trying to diversify from non-search related activity and even entering longer tail projects like driverless cars will see the performance as a validation on some of those pursuits. However investors should pay attention to the potential further decline in search or advertising revenue, as the economic health of its customers may continue to decline due to COVID-19.
Big Losers from Yesterday’s Earnings
Starbucks was one of the big losers from companies which reported Q1 numbers yesterday. The company reported a total net income of $328.4 million, in comparison to $663.2 million in the same period a year ago. As a result, shares of the stock fell by close to 2% in out of hours trading.
Many were expecting the decline to be greater, however the company warned investors, earlier in April that numbers would be weaker than last year, which somewhat cushioned the initial market reaction to the news.