Google ad revenues falls 8% as company grapples with economic headwinds

Internet advertising and search giant Google has conceded that even it is not immune from the economic downturn, with revenue for Q2 slipping slightly to US$38.297bn -a 2% decline on the same quarter last year. $29.867bn came from Google advertising, down 8% on last year’s US$32.949bn.

CEO of Google and its parent company Alphabet, Sundar Pichai, said the economic environment remains fragile, and noted it’s an uncertain time in the world.

“The macroeconomic environment caused by the pandemic created headwinds for our business,” he said. CFO Ruth Porat, however, said the company was “cautiously encouraged” by its Q2 results.

Google’s revenue breakdown for Q2 (Click to enlarge) 

Revenues from YouTube ads grew from US$3.603bn in Q2 2019 to US$3.812bn.

Operating expenses were US$13.4bn, up 7% year-on-year, largely driven by headcount growth. Alphabet’s employee count grew from 107,636 in Q2 2019 to 127,498 in Q2 2020.

The company spent US$6.875bn on research and development across the quarter. For the calendar year to date, it has spent US$13.695bn on R&D, up from 2019’s US$12.242bn.

Sales and marketing costs were also up. For the quarter, they fell 7.4% to US$3.901bn, however for the half year they were up 3.5% to US$8.401bn.

Pichai told investors the company was focused on providing trusted experiences for its users and was doing “even more” to protect users’ privacy. This has extended to a spotlight on election security efforts “whether it’s removing co-ordinated foreign influence operations, preventing hacking and phishing attempts, or enforcing our political ad policies that require transparency and prohibit narrow micro-targeting”, he said.

Alphabet’s financials (Click to enlarge) 

Both Google and Facebook are under the microscope in Australia and more broadly in the US. While Facebook CEO Mark Zuckerberg said he was “troubled” by the scrutiny directed at internet advertising, Google’s Pichai said given his company’s scale, the attention was “appropriate”.

“I’m confident in the approach we take – our focus on users, and the evidence in almost all areas we operate in – we expand choice, overall lower prices, and it’s, overall, there’s a very fast pace of innovation,” he said. “So it’s dynamic and competitive.”

He predicted the scrutinity will be around for some time, and said the company would adapt as needed.

In recent weeks, Twitter revealed its advertising revenue fell 22% across the quarter. In contrast, Facebook’s advertising revenue climbed 10.2% over the quarter to in excess of US$18bn.


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