Alphabet’s revenue has for the first time in its two-decade history suffered a drop. This was occasioned by the Coronavirus pandemic and ensuing economic slowdown which forced advertisers to cut spending.
The company, which owns Google and its products including YouTube, experienced an 8.1 per cent drop in its earnings in the second quarter compared to the same period last year. Ad sales, which make up the bulk of the sales at the Tech giant, were 29.9 billion during the period.
By the end of the quarter, Chief Financial Officer at Google, Ruth Porat, reported that ad sales were once again picking up and that YouTube and Google’s cloud businesses continued to be relatively strong with the shares inching higher in extended trading.
“We are cautiously encouraged by our results,” Porat said, adding that “it’s premature to say that we’re out of the woods.”
Advertising sales started declining well before the pandemic as investors are increasingly showing more interest in smaller but fast-growing units. Cloud revenue grew to $3 billion which is a 43 per cent increase from the same period last year, while YouTube had a 6 per cent growth to $3.8 billion. This was attributed to stay at home orders which had many people using the channel. Overall, The Alphabet’s revenue fell by 2 per cent to $31.6 billion excluding fees payable to partners.
Cloud services have been sought after during the pandemic period as it helped people working remotely. The economic slowdown also meant a lot of businesses have been reluctant to invest in extra software and infrastructure.
“Overall I felt the momentum was strong, in cloud,” Chief Executive Officer Sundar Pichai said. The company’s rival, Amazon.com Inc.’s cloud unit, which is much bigger than Google’s, grew 29% to $10.8 billion in the quarter.
Porat said that spending and hiring would continue, especially for the cloud business. During the same quarter, Google hired about 4,000 new workers, about the same number it did last year. The company had earlier said that it would slow down hiring but that was not the case. The company ended the quarter with 127,498 employees, 18 per cent more than it had a year earlier.
The Alphabet company cut back considerably in the Real Estate front, mostly due to remote working. Earlier this week, Google announced that its employees would continue working home until July 2021.
The spending cuts were however not significant as the company still suffered a 30 per cent drop in its net income to $6.96 billion.