Tech

Microsoft's slowdown in search advertising could spell tough news ahead for Google

Key Points
  • Google parent company Alphabet is less diversified than Microsoft.
  • Alphabet Class A shares were trading lower on Thursday after Microsoft reported second-quarter results that showed double-digit search declines.
Alphabet CEO Sundar Pichai gestures during a session at the World Economic Forum (WEF) annual meeting in Davos, on January 22, 2020.
(Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)

Microsoft's advertising business struggled last quarter, as advertisers cut their budgets during the coronavirus pandemic and corresponding spike in U.S. unemployment.

That outcome could spell bad news for search advertising rival Google, whose parent company Alphabet reports second quarter earnings next week.

On Wednesday, Microsoft said that search revenue minus traffic acquisition costs fell 18% from the year-ago quarter as customers spent less on ads.

One quarter ago, that part of Microsoft's business was up 1% year-over-year, while Google search ad revenue declined 9.4%. Google's search engine is more widely used than Microsoft's Bing; Google had about 84% market share in June, while Bing had 6%, according to NetMarketShare.

Microsoft as a whole saw slower growth as the coronavirus affected many parts of its business last quarter, but portions of its business like gaming, cloud infrastructure and productivity software helped smooth out the results as people remained at home around the world to reduce spread of the coronavirus. Alphabet is less diversified than Microsoft, with 84% of its revenue coming from Google advertising in the first quarter.

Analysts polled by Refinitiv currently expect $37.35 billion in second-quarter revenue from Alphabet, suggesting a 4% year-over-year decline. A Google spokesperson did not immediately respond to a request for comment. 

Amy Hood, Microsoft's chief financial officer, said Wednesday that the company expects search revenue for the current quarter, excluding traffic acquisition costs, to be down "in the low 20% range." (Microsoft's fiscal year ended June 30.)

Amid a broad sell-off in tech stocks on Thursday, Alphabet Class A shares were down as much as 3.5% and Microsoft stock traded as much as 4.4% lower.

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