Google Shares Rise on Q1 Revenue Beat-Earnings Live Blog

Eric Jhonsa

Alphabet GOOGL shares were rising after-hours on Tuesday after beating first quarter revenue estimates, although earnings per share came in lighter than expected.

For the quarter, revenue of $41.16 billion beat a $40.82 billion consensus, while EPS of $9.87 came in below a $10.68 consensus. Excluding traffic acquisition costs, Q1 revenue was $33.71 billion, beating a $33.32 billion consensus.

Shares were rising 3.4% to $1,275.00 after-hours after falling 3% during the regular hours trading session. 

Eric Jhonsa, TheStreet and Real Money's tech columnist, is analyzing Alphabet's first quarter earnings report, as well as its call with analysts, scheduled for 4:30 p.m. E.T.

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Eric Jhonsa
Eric Jhonsa

Editor

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet's call has ended. Class A and Class C shares are up about 7.5% in after-hours trading after Alphabet posted mixed Q1 numbers (EPS missed, but revenue beat) and the company made some earnings disclosures about how ad sales have been trending in recent weeks.

In particular, CFO Ruth Porat's comment about search ad revenue growth not further deteriorating in the first weeks of Q2 relative to the mid-teens decline being seen at the end of Q1 appears to have given Alphabet's shares a boost.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether Google has seen any improvement in advertiser interest for running campaigns, as it sees some improvement in commercial search activity among consumers. Also one about YouTube's growth.

Pichai: Advertisers respond to changes in search activity faster. Brand ad spend can take longer to change both on the way down and on the way up. Google is having "active conversations" between its teams and advertisers, to see how advertisers can respond to demand shifts.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding buybacks, Porat says that Alphabet plans to keep repurchasing shares in Q2 at a pace at least consistent with its Q4 2019 levels.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: YouTube watch time has increased across the board. More advertisers are looking at direct response ads. Things like unboxing videos and product reviews are a natural fit for direct response ads. We're working hard to get the experience right.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Google Cloud.

Pichai: We have good momentum with Google Cloud. There are cases where deals are "taking a bit longer" to close. But companies are thinking about the shift to digital in a deeper way, and that will help long-term.

Porat reiterates that Google Cloud's current revenue trends are very different from that of ad businesses. Also highlights how remote work activity is driving G Suite adoption.

Eric Jhonsa
Eric Jhonsa

Editor

Question about recent Google Shopping changes (Google will now show free product listings in addition to paid listings), and its impact on near-term revenue.

Pichai: People come to Google for a diverse range of needs. It made a lot of sense for us to provide greater product selection. Need to make sure that the quality of listings remains high. As we've seen with search, improving the organic experience helps the ad business over time.

Porat: There isn't much to say about the revenue impact. Goal is on creating long-term value. We have a good leader for this effort (former PayPal COO Bill Ready).

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: We're seeing good traction with G Suite. Google Meet has seen a lot of traction, we have more announcements planned there. People are really looking at greater cloud adoption.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai on search: We can quickly spot shifts in customer activity and interests. We can use that data to help us engage with customers.

Adds that there have been shifts in ad budgets, and that certain industries such as travel have been significantly impacted.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Google's efforts to support SMBs.

Pichai: It's an area we've been investing for a while in a number of areas (ads, G Suite, etc.). We'll continue investing there, including to bring offerings to international markets.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet's Class C shares are now up 5.7% after hours. Porat's comments about search ad growth rates not seeing further deterioration this month seem to be helping.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: AI/ML investments are still a long-term spending priority, as are efforts to support "ambient computing" and cloud efforts. We're also closely watching how user patterns are changing, such as in e-commerce and videoconferencing, and investing to support those changes.

Eric Jhonsa
Eric Jhonsa

Editor

Question about the kind of ad growth Google has seen in Q2 so far.

Porat reiterates ad spend is tied to the macro environment, and that it's tough to project how they'll trend. Says it would be premature to extrapolate Google's performance for the quarter based on the first few weeks.

Does say that Google hasn't seen further deterioration in search growth rates since the end of March. YouTube direct response ad sales have remained strong, but brand ad sales have continued to decline.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how Alphabet aims to come out stronger following the end of the pandemic.

Pichai: Businesses are thinking more deeply about the shift towards digital. Advertisers thinking about things like virtual showrooms, businesses are thinking about greater cloud adoption, etc.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding headcount growth, Porat stresses that Google continues to hire, but at a slower pace.

Also notes Google has lowered its marketing spend, but still has a healthy promotional budget.

Eric Jhonsa
Eric Jhonsa

Editor

Question about the performance of direct response YouTube ads (ads related to things such as e-commerce and app downloads).

Pichai: We continue seeing good traction for direct response YouTube ads. We're learning from our efforts, and sharing those insights with customers.

Eric Jhonsa
Eric Jhonsa

Editor

The Q&A session is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Also says Alphabet now expects "a modest decrease" in capex in 2020. Lower office facility spending will be the biggest factor.

"Technical infrastructure" spend is now expected to be roughly similar to 2019 levels, with a higher portion of spend going towards servers relative to data centers.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: A lot of our expenses don't decline with lower revenue.

Says that Alphabet now expects headcount growth to decelerate in 2020 relative to 2019, with this deceleration expected to become more visible in Q3.

Eric Jhonsa
Eric Jhonsa

Editor

Adds that Alphabet remains pleased with how Google Cloud (both GCP and G Suite) is performing.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: We anticipate Q2 will be a difficult one for our ad business.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Though we've seen some very early signs of recovery in commercial search behavior among users, it's not clear how durable or monetizable this behavior will be.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet is holding onto its post-earnings gains: Class C shares are currently up 3.4%.

Eric Jhonsa
Eric Jhonsa

Editor

TAC as a % of ad revenue fell slightly Y/Y, thanks to a favorable mix shift from Google Networks ad sales to ad sales on Google properties.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: In the latter parts of Q1, we saw higher user engagement with apps and digital content.

Eric Jhonsa
Eric Jhonsa

Editor

As was the case on the Q4 call, Porat says that Google Cloud Platform (GCP) revenue growth was well above total Google Cloud revenue growth (52% in Q1).

Eric Jhonsa
Eric Jhonsa

Editor

Google Networks ad revenue (ad sales on non-Google sites and apps) was declining at a low-double digit % at the end of March.

Eric Jhonsa
Eric Jhonsa

Editor

She adds that YouTube revenue growth remained strong until late in Q1. Growth was in the high-single digits at the end of March.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Google Search & Other revenue was declining at a mid-teens % at the end of March.

Eric Jhonsa
Eric Jhonsa

Editor

Porat once more says that Google Cloud was the biggest area for headcount growth. Google Cloud chief Thomas Kurian has made sales and support hiring a priority.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: G&A spend rose strongly thanks to the creation of a reserve related to COVID-19.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Excluding TAC, cost of revenue rose 26% Y/Y. Data center depreciation expenses and YouTube content expenses contributed to the growth.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: Our ad revenue decline in Asia-Pac was "more muted" than in other regions.

Eric Jhonsa
Eric Jhonsa

Editor

Porat: While ad sales fell in March, our non-advertising revenue remained strong.

Eric Jhonsa
Eric Jhonsa

Editor

CFO Ruth Porat now talking.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: We'll be optimizing the way our data centers work, and prioritizing "strategic investments" for them.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding hardware sales, Pichai notes (in line with third-party commentary about smartphone demand) there has been a recent slowdown in device activations.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: There are now over 2.5B monthly active Google Play devices.

Eric Jhonsa
Eric Jhonsa

Editor

There are now over 6M paying G Suite customers.

Eric Jhonsa
Eric Jhonsa

Editor

Says an ad spend rebound will depend on a return to normal economic activity. Adds that there are two reasons for optimism: It's very easy for advertisers to resume search ad campaigns when they're ready, and Google's business is more diversified than it was in 2008, thanks to non-advertising businesses.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: Q1 was a tale of two quarters. January/February were strong, March saw a major slowdown.

Eric Jhonsa
Eric Jhonsa

Editor

Adds that Google has seen "a massive increase" in Chromebook demand.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: People are relying on Google services more than ever. We've seen a significant rise in search activity. Google Play app downloads up 30% from February to March. YouTube viewing also up strongly.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: Our COVID-19 info panels had 20B impressions as of last week.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai goes over Google's work with healthcare providers, researchers, communities, etc. in recent weeks, as well as its contact tracing partnership with Apple.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: Our ad business was "significantly impacted" during the last few weeks of Q1.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai: The most pressing concern for a lot of businesses right now is continuity. We'll see significant and lasting long-term changes towards adoption of digital services.

Eric Jhonsa
Eric Jhonsa

Editor

Pichai starts off by saying his thoughts are with those affected by COVID-19. Says there's still a great deal of uncertainty, and says efforts to deal the virus will be long-term. Highlights various efforts to use tech to assist with the effort.

Eric Jhonsa
Eric Jhonsa

Editor

CEO Sundar Pichai talking.

Eric Jhonsa
Eric Jhonsa

Editor

Alphabet is going over its safe-harbor statement.


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