Alphabet, the parent company of Google has reported its earnings for the first financial quarter of the year and it reveals a 13% Year-on-Year increase
Overall, Google Cloud is up by 52%, YouTube is also up by 33% but the other bets are down by 21%. The financial report states revenue of $41.2 billion, net income of $6.8 billion, and earnings per share of $9.87.
In Q1 2019 however, Alphabet had revenue of $36.3 billion, net income of $8.3 billion, and earnings per share of $11.90. Google advertising made up to 82% of Alphabet’s total revenue for the quarter, at $33.8 billion.
Due to the impact, the global pandemic has on advertising, many have taken to intensely examining Alphabet’s number to see how badly the pandemic has affected the business. Conversely, the report of the first quarter which ended in May has only given a glimpse of what the company should expect.
Earlier on, analysts had expected that Alphabet would earn a revenue of $40.3 billion and have earnings per share of $10.38. Interestingly, the company was able to meet up with and even beat the revenue projected. On the other hand, they were unable to meet that of the earnings per share. Alphabet’s stock was down by 3% in regular trading and it was up by 7% in after-hours trading. In all of these, one good thing is that Sunday Pichai is the CEO of both Alphabet and Google.
Sunday in a statement, mentioned that
“Given the depth of the challenges so many are facing, it’s a huge privilege to be able to help at this time. People are relying on Google’s services more than ever and we’ve marshaled our resources and product development in this urgent moment.”
IS MORE SLOWDOWN EXPECTED IN Q2?
Despite that Alphabet’s revenue for Q1 2020 was up by 13% compared to 2019, the CFO of the company in person of Ruth Porat says the quarter still ended on a low note. According to her, the traffic acquisition costs were up 8.6% to $7.25 billion. Ruth stated that
“Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues.”
Pichai made it clear that although the company expects the second quarter to be a difficult one, it is still too premature to comment on timing, giving all the variables.
One thing to also note is that Alphabet employed 123,048 employees, growing its headcount by 19%. Meanwhile, considering everything going on, the company would be slowing down on hiring going further. Therefore, this number is another thing to watch out for this year as regards Alphabet.
The division of Google cloud is in a tough battle with Amazon Web Services (AWS) and Microsoft Azure – two companies considered as market leaders. Google’s division includes revenues from both Google Cloud Platform as well as G Suite. This has made it difficult to compare with other public cloud providers.
To make it clear, Google has always said that the growth of GCP tends to the higher than the cloud division overall. It automatically means that G Suite has a lower growth.
In Q1 2019, Google Cloud’s revenue was on $1.83 billion and by Q1 2020, the revenue has risen by 52% with the revenue on $2.78billion. Indeed, the growth is highly commendable, but the revenue for the other quarters of the year wasn’t mentioned. So, one cannot compare the revenue to the previous quarters.
For Google Cloud, Alphabet just began breaking it out in the previous quarter. Due to this, the only data point is that Google Cloud revenue was up 53% in Q4 2019.
It was just last quarter that Alphabet started breaking out YouTube as a separate line item in its earnings. Impressively, YouTube ads brought in $4.04 billion in Q1 2020, a 33% increase compared to $3.03 billion that was brought in Q1 2019.
It is important to note that other non-advertising revenue for YouTube is not included in that figure. The company hides that revenue under “Google other” line item and in this quarter, Google other reported $4.4 billion. Apart from the non-advertising revenue, hardware sales such as Chromebooks, Pixel phones, and Nest products like smart speakers are included in “Google other.”
Other bets is a cover name for all the other companies under the umbrella of Alphabet. These companies include CapitalG, DeepMind, Calico, DeepMind, GV, Jigsaw, Google Fibre, Sidewalk Labs, Makani, Wing, Verily, Waymo, and X.
For years now, Alphabet has been breaking out its Other Bets and the losses are always outweighing the gain. In Q1 2020 for instance, Other bets did worse than it did in Q1 2019. The revenue was down 21% to $135 million in Q1 2020 while losses were up 29% to $1.1 billion.
There has been a lot of pressure on Pichai to clean up other bets since he became the CEO of Alphabet and Google. As it is, this pandemic and its effect on the company would only increase this pressure in 2020.
The reports on Other Bets only show to the world how much Alphabet is investing in crazy research projects. The question though is, how much are the individual projects (self-driving cars, internet balloons and anti-aging labs) costs to run? Also, are any of these projects likely to be profitable?