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Google's cloud business was a bright spot in an otherwise mixed quarter for Alphabet.
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That’s some good news for the first full quarter that Sundar Pichai is leading both Alphabet and Google.
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While Advertising continues to generate the most revenue for Google, the number is down significantly compared to last quarter.
Google parent company Alphabet today reported earnings for its first fiscal quarter of 2020, including revenue of $41.2 billion, net income of $6.8 billion, and earnings per share of $9.87 (compared to revenue of $36.3 billion, net income of $8.3 billion, and earnings per share of $11.90 in Q1 2019). At $33.8 billion, Google advertising made up 82% of . Given the global pandemic’s impact on advertising, many are poring over Alphabet’s numbers to see how bad the damage is — but given this quarter ended in March, it only shows a glimpse at what’s to come.
Analysts had expected Alphabet to earn $40.3 billion in revenue and report earnings per share of $10.38. The company thus beat on revenues but missed on earnings per share. The company’s stock was down 3% in regular trading, and up 7% in after-hours trading. That’s some good news for the first full quarter 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 marshalled our resources and product development in this urgent moment.
-Alphabet and Google CEO Sundar Pichai
Slowdown in Q1, more to come in Q2
While Alphabet’s Q1 2020 revenues were up 13% versus last year, CFO Ruth Porat warned the quarter ended on a low note. “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. Traffic acquisition costs were up 8.6% to $7.45 billion.
On the earnings call, Pichai said the “significant and sudden” hit to advertising in March “correlated to the locations and sectors impacted by the virus and related shutdown orders.” Porat added that the company expects the second quarter “will be a difficult one” for its advertising business. But, she noted it would be “premature to comment on timing, given all the variable here.”
Alphabet also grew its headcount by 19% to 123,048 employees in Q1 2020. The company is slowing down its hiring so this number will be another one to watch this year.
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Google Cloud
Google’s cloud division is in an uphill battle with market leaders Amazon Web Services (AWS) and Microsoft Azure. The division includes revenue from Google Cloud Platform as well as G Suite, making the comparison with other public cloud providers difficult. Google has consistently said, however, that GCP growth tends to be higher than the cloud division overall, meaning G Suite’s growth is lower. But there is some good news for G Suite too — Google Meet, the company’s Zoom competitor, is growing quickly.
“Last week, we surpassed a significant milestone,” Pichai said on the earnings call.
We are now adding roughly 3 million new users each day and have seen a 30-fold increase in usage since January. There are now over 100 million daily Meet meeting participants.
-Alphabet and Google CEO Sundar Pichai
Google Cloud revenues in Q1 2020 hit $2.78 billion, up 52% from $1.83 billion in Q1 2019. That’s a big jump, but we don’t know how it compares to previous quarters. Alphabet only began breaking out Google Cloud in the previous quarter. We thus only have one other data point: Google Cloud revenue was up 53% in Q4 2019.
YouTube
Alphabet also only started breaking out YouTube as a separate line item in its earnings last quarter. YouTube ads brought in $4.04 billion in Q1 2020, up 33% from $3.03 billion in Q1 2019.
It’s worth noting that Alphabet also counts other non-advertising revenue for YouTube, which isn’t included in this figure. The company hides that revenue in the “Google other” line item, which this quarter was $4.4 billion. That segment in turn also includes hardware sales such as for Chromebooks, Pixel phones, and Nest products like smart speakers.
Other Bets
Unlike for Google Cloud and YouTube, Alphabet has been breaking out its Other Bets for years. The losses always outweigh the gains because, well, these are moonshots after all.
Other Bets did worse in Q1 2020 than in Q1 2019. Revenue was down 21% to $135 million in Q1 2020 while losses were up 29% to $1.1 billion. Since becoming the head of Alphabet and Google, Pichai was expected to be under a lot of pressure to clean up Other Bets. Given the current economic climate, the pressure will likely only increase this year.
Other Bets encompass the other companies under the Alphabet umbrella, including Calico, CapitalG, DeepMind, GV, Google Fiber, Jigsaw, Loon, Makani, Sidewalk Labs, Verily, Waymo, Wing, and X. As always, the line item leaves us with more questions than answers. Other Bets shows how much Alphabet is investing in its crazy research projects, but we still have no idea how much the individual projects (self-driving cars, internet balloons, anti-aging labs) cost to run, nor whether any single one of them is profitable (unlikely).
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