Alphabet reports first revenue decline in company history

Key Points
  • Google parent-company Alphabet reported its first quarterly year-over-year revenue decline.
  • The company beat most expectations with the exception of its Cloud division.
  • Investors were non-plussed, and the stock barely moved after the report. 

In this article

Alphabet beats on top and bottom line in Q2
Alphabet beats on top and bottom line in Q2

Google parent-company Alphabet beat expectations for its second quarter earnings Thursday, but marked its first quarterly year-over-year revenue decline in company history as the coronavirus pandemic slowed economic growth and advertisers pulled back spending during the quarter. The company's stock barely moved after hours.

Here's how it did against Refinitiv consensus estimates: 

  • EPS: $10.13 (non-GAAP), vs. $8.21 estimated.
  • Revenue: $38.30 billion vs. $37.37 billion estimated.
  • YouTube advertising revenue: $3.81 billion vs. $3.78 billion, according to StreetAccount estimates
  • Google Cloud revenue: $3.01 billion vs. $3.06 billion, as per StreetAccount
  • Traffic acquisition costs (TAC): $6.69 billion vs. $6.67 billion, as per StreetAccount

The company's board also authorized the company to repurchase up to $28 billion of its Class C shares.

Alphabet's second quarter revenue dropped 2% from the same period a year ago. The bulk of the company's revenue comes from advertising.

CFO Ruth Porat said on an earnings call that consumers returned to more "commercial" search queries toward the end of the quarter, and advertisers began increasing their search spending, so search revenue ended the quarter about even from last year.

However, she cautioned that it's hard to gauge whether those trends will continue. "We believe it is premature to gauge the durability of recent trends, given the obvious uncertainty of the global macro environment," she said.

As a result of the customer pullbacks amid the Covid-19 pandemic and the general maturing ad market, Alphabet itself cut marketing spending by half and instituted hiring freezes for the second half of the year in anticipation of a slowdown, CNBC reported. Around that time, Alphabet CEO Sundar Pichai said Google would be pulling back on some of its investments for the rest of the year amid the Covid-19 crisis, starting with hiring. 

Analysts also peppered execs with question about future growth opportunities, given the slowdown in advertising growth. Pichai briefly pointed to newer businesses he sees longterm growth in such as cloud computing and artificial intelligence, as well as YouTube and shopping. 

Google's "other revenue," which includes hardware like its Pixel phones, came in at $5.12 billion, compared to $4.08 billion in the same quarter a year ago.

Analyst: Facebook and Amazon numbers were pretty shocking
Analyst: Facebook and Amazon numbers were pretty shocking

Revenue from "Other Bets," which includes Alphabet's self-driving car business Waymo as well as life sciences company Verily, fell to $148 million compared to $162 million in the same quarter the year prior. The Other Bets showed an operating loss of $1.11 billion during the quarter.

Alphabet added approximately 4,000 new employees, making the full-time workforce consist of 127,498 during the second quarter. That doesn't include contractors. Porat said that the company will continue to decelerate year-over-year headcount growth.

Google is also facing antitrust probes along the same lines by the Department of Justice and 50 attorneys general investigating Google company's search and Android businesses. That is expected to result in legal action that could span issues ranging from its search product to digital advertising marketplace, according to a recent report from The Wall Street Journal.

When analysts asked about this on the call, CEO Sundar Pichai said "I think the scrutiny is going to be here for a while." He added that the company will "adapt."