Google reports slowest revenue growth in 5 years as pandemic hits advertising
Americans are using Google more than ever, as the coronavirus pandemic drives most activities online. However, Google's parent company, Alphabet, reported its weakest revenue growth in nearly five years in the first quarter as the pandemic-spurred recession infected its advertising sales.
Alphabet's first-quarter revenue increased 13% from the same time last year, to $41.2 billion. While most companies would celebrate that kind of growth, it's a significant slowdown for Google, which has regularly generated quarterly revenue gains of 20% to 25%.
The company's revenue growth hasn't been this low since the summer of 2015. That was before Google created Alphabet as a new holding company for itself and a hodgepodge of more risky tech ventures.
Google's ad revenue slowed even as Americans used its services "more than ever," CEO Sundar Pichai said on an investor phone call Tuesday. The number of teachers and students using Google classroom, for instance, doubled in a little over a month, to 100 million, and the company's Meet tool is adding about 3 million users per day, he said.
While online searches rose throughout the quarter, people shifted to looking for less-commercial topics — such as COVID-19 — and advertisers pulled back on spending, Pichai said.
"In March, we experienced a significant and sudden slowdown in ad revenues," he said, noting that the slowdown correlated with the industries and geographic regions hit by coronavirus during that period.
The hit to the company's ad business was "serious" but "not as severe as it could have been," eMarketer principal analyst Nicole Perrin observed in a note.
The January-to-March earnings report offers a first look at how the digital ad market has fared amid widespread local and international government orders requiring consumers to stay at home. The deadly pandemic and its parade of negative headlines have given many mass-market advertisers little incentive to peddle their products and services.
The first quarter also offers an incomplete picture because ad demand in most parts of the world wasn't hit hard until late February and early March. That's when the coronavirus outbreak accelerated and governments imposed lockdowns to fight it.
Google's second quarter " should be a difficult one for our advertising business," Ruth Porat, the company's chief financial officer, told analysts Tuesday.
Alphabet earned $6.8 billion during the quarter, a 2% increase from last year. The company's stock climbed 3% to $1,269.50 in extended trading.
CBS News' Irina Ivanova contributed reporting.