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Google parent reports strong first-quarter sales but says ads fell off in March

Alphabet has diversified into cloud services and gadgets, but advertising on Google still accounts for most of its revenue. Above, developers gather for a Google conference before the pandemic hit.
(Justin Sullivan, Getty Images)

Alphabet Inc. reported first-quarter revenue that rose more than expected, showing demand for advertising was relatively high in the months before the coronavirus pandemic hit the online search giant’s customers.

The Google parent said sales came in at $33.71 billion, up 14% from a year ago. That compares with an average analyst estimate of $32.6 billion, according to data compiled by Bloomberg. The results reflect the period before the full impact of the pandemic, which forced thousands of businesses to cut marketing spending.

The company doesn’t issue forecasts. However, Chief Financial Officer Ruth Porat said the final month of the quarter was difficult. “Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues,” she said in a statement. “We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.”

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In an interview with Bloomberg TV, the CFO suggested the company’s services are being used more, which should help results in the future. “Given the usage trends we are seeing, we remain really optimistic about long-term trends,” she said.

The long-term opportunities include search, cloud computing, machine learning and consumer hardware, Porat added, while noting the company is “looking at levers we have to moderate spending.”

Alphabet shares gained 3.9% in extended trading. The stock closed at $1,232.59 in New York and has fallen about 7% this year.

In Asia, where the pandemic hit earlier, Google revenue fell 3% in the first quarter, from the previous period.

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Google is culling its own advertising budget as part of a broader effort to contain costs, Chief Executive Officer Sundar Pichai said in a recent memo to employees. Alphabet has diversified into cloud services and gadgets, but advertising still accounts for the vast majority of revenue. Large clients like Expedia Group Inc. are already slashing marketing costs. Interpublic Group of Cos., one of the largest advertising holding companies, said last week the second quarter would be “very difficult.”

Google derives much of its revenue from small businesses, thousands of which could shut as a deep recession sets in. The internet company has a self-service ad platform that can be switched off quickly.

“Overall ad spending will mirror the likely contraction in the economy caused by the pandemic, and we expect Alphabet to suffer from slower growth for the balance of the year,” Wedbush Securities analyst Michael Pachter said in a note to clients before the results came out.

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First-quarter net income was $6.84 billion, or $9.87 a share, versus $6.66 billion, or $9.50 a share, in the same period last year, the company reported.


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