Alphabet Reports First-Ever Revenue Decline in Company History

It reported a 1.5% drop from the same time last year, but beat analyst expectations

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Google reported its Q2 earnings Thursday. Unsplash
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Alphabet, the parent company of Google, reported revenues of $38.3 billion for the second quarter of 2020, a time marked by significant economic disruption due to the Covid-19 pandemic. As analysts expected, this was the first time in the company’s history that its revenues fell year over year.

Even with the relative decline, the company out-performed analyst predictions. The earnings report came one day after Sundar Pichai, the company’s CEO, was grilled about anticompetitive practices by Congress alongside the chief executives of Amazon, Apple and Facebook.

Total revenue was down 1.5% from $38.9 billion in the same quarter last year and down 7% from Q1 revenue of $41.2 billion. Net income also fell to $6.9 billion, down 30% from $9.9 billion in Q2 2019.

This quarter’s revenues were driven by “gradual improvement” in its ad business and “strong growth” in other categories, including Google Cloud, said Ruth Porat, Alphabet and Google’s CFO, in a statement. “We continue to navigate through a difficult global economic environment,” Porat said.

Revenue from search dropped from $23 billion to $21 billion year over year while YouTube ad revenue rose slightly from $3.6 billion to $3.8 billion since last year. In total, Google’s advertising business brought in $29 billion this quarter, an 8% drop year over year. The company’s workforce grew 18% in the past year to 127,498 employees.

The digital advertising leader controlled 37% of the market last year, the largest of the so-called triopoly shared by Google, Facebook and Amazon. 

“Google ad revenues were down for the quarter, but all three parts of Google’s ad business outperformed our expectations for Q2, including a substantial beat for search revenues (down 10%) compared to our expectations of a 17% decline,” said eMarketer principal analyst Nicole Perrin. 

In its last earnings report, the company called the first three months of the year “a tale of two quarters,” as U.S. advertising spend fell sharply in March as the pandemic reared its head. 

“We expected April to be the bottom of the digital ad market, with a return to growth in May and June,” Perrin said. “These results suggest that acceleration was stronger than expected.”

Porat suggested it was true on the earnings call and that ad revenue “gradually improved” as the quarter progressed, adding that it was “premature” to say the company is “out of the woods.”

Alphabet’s stock rose only 0.5% in after-hours trading following the earnings report. The other three tech behemoths that testified in Wednesday’s hearings and reported earnings today all saw their stock rise more than 5% after positive Q2 earnings.

When asked about regulatory pressure on the earnings call, Pichai said Alphabet has “obviously been operating under scrutiny for a while,” scrutiny that he called appropriate given the company’s size. Pichai was pressed yesterday on a wide range of topics, including whether Google aggregates user data across services, the company’s 2006 acquisition of YouTube, its integration of DoubleClick, children’s privacy and GDPR compliance.

“Scrutiny is going to be here for a while and we’re committed to working through it,” Pichai said.

@ScottNover Scott Nover is a platforms reporter at Adweek, covering social media companies and their influence.
Publish date: July 30, 2020 © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT