Enlarge /. Google logo during the Google Developer Days (GDD) in Shanghai, China, September 2019.

Google had its first drop in sales as the coronavirus crisis wiped out 8 percent of advertising revenue in the last quarter and parent company Alphabet's sales were down 2 percent year over year.

Despite the unprecedented decline in its core business, Google executives said conditions improved over the quarter and were cautiously optimistic about a return to growth in the current period.

Sundar Pichai, CEO, said Google saw "the first signs of stabilization when users returned to online commercial activity."

Ruth Porat, chief financial officer, added that the search advertising business ended the quarter with sales that were roughly unchanged from the previous year and also experienced a "modest improvement" in July.

The advertising business is closely linked to the economy as a whole, she added, and the “fragile” conditions leave the prospects uncertain in the coming months.

Google’s advertising is heavily dependent on small and medium-sized businesses that were hit hardest by the downturn.

The decline in advertising was partially offset by a 6 percent increase in YouTube, where some improvement in demand for branded advertising increased sales to $ 3.8 billion.

The company's cloud business also saw sales jump 43 percent to $ 3 billion. Although performance reflected growth reported by other cloud computing companies during the pandemic, growth was still below the 52 percent of the past three months and below most expectations.

Google missed the pandemic-boosting rival Amazon last quarter as its cloud business is much smaller than that of Amazon Web Services, while repeated attempts to strengthen its position in online trading have been unsuccessful. Mr. Pichai said he was confident that recent efforts under a new management team would produce "long-term" results.

The company's executives said three months ago that Google had started the second quarter with ad revenue that was down from mid-teen compared to the previous year. But they also surprised investors at the time with the news that they saw the first signs of stabilization in search engine advertising.

Since then, Alphabet's shares have risen 25 percent, almost twice as much as in the broader US stock market. According to the earnings news, the price rose less than 1 percent.

Alphabet, which Google has more than 99 percent of its sales, had gross sales of $ 38.3 billion in the last period. Net sales, less transportation costs, decreased less than one percentage point to $ 31.6 billion.

Earnings per share decreased 29 percent to $ 10.13 as costs rose 7 percent despite a company-wide moratorium on all non-essential hires.

Most analysts had expected Alphabet's net sales to decrease 4 percent to $ 30.5 billion last quarter and earnings per share to drop to $ 8.34. They had also forecast a return to growth in the third quarter. Revenue is expected to recover by almost 3 percent and earnings per share to rise by 6 percent.

© 2020 The Financial Times Ltd. All rights reserved. No disclosure, duplication or change.


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