Google sales decline amid pandemic, but still beat estimates

The search giant says it's seen "gradual improvement" in its ad business since the first quarter, but warns of a "fragile" economy.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
3 min read

Google announced earnings a day after a landmark antitrust hearing.


The coronavirus pandemic took a toll on Google , bringing the company's sales down year over year for the first time in its history. Still, the search giant beat estimates by Wall Street analysts.

As economies around the world began to shut down last quarter as governments and businesses sought to combat the spread of COVID-19, Google's business took a hit. The slide came as advertisers -- Google makes most of its money on ads -- decided to pull back while people hunkered down in their homes. 

Google's parent company, Alphabet, did better than expected during the first three months of the year, but warned of a sharp drop-off for the second quarter. It announced those results Thursday, giving investors and the public a glimpse of the full business impact of the pandemic.

During the quarter ended June 30, Alphabet tallied $38.2 billion in sales, beating analyst estimates of $37.37 billion. Earnings per share were $10.13, beating of expectations of $8.21 per share, according to Refinitiv. Analysts had taken the expected slump into account, estimating lower numbers year over year -- a rare occurrence for a company as valuable as Alphabet.

Google's sales dipped 2% compared to the same period last year, but the company said YouTube revenue and gains from Google's cloud business helped to dull the blow. 

"Like other companies, this quarter, we saw the early signs of stabilization as users return to commercial activity online," CEO Sundar Pichai said on a conference call with analysts. "Of course, the economic climate remains fragile."

CFO Ruth Porat said the company's ad business had made "gradual improvement" since the start of the pandemic, but also cautioned investors that the company could still face problems. "It's premature to say that we're out of the woods," she said on the call.

Google also announced a $28 billion stock repurchase.

The second-quarter earnings report comes a day after Pichai faced a congressional subcommittee for a historic antitrust hearing, where he was joined by the CEOs of Facebook , Amazon and Apple . During the grilling, Pichai defended Google against criticism of the company's massive digital ad business, which generates the majority of its more than $160 billion in sales each year.

Watch this: Here are the best moments from Google CEO Sundar Pichai's testimony before Congress

Critics are accusing Google of anticompetitive behavior with its ad business because the company owns all sides of the auction system, which could give it an unfair edge. This year, Google will get 29.4% of all ad dollars spent online in the US, eMarketer predicts. Facebook will be No. 2 in digital ad sales, with 23.4%.

At the hearing, Pichai argued that competition in the market for online ads has helped lower online advertising costs by 40% over the last 10 years. "Google's continued success is not guaranteed," he said. "New competitors emerge every day, and today users have more access to information than ever before."

On the call, Pichai didn't acknowledge the hearing, except to say, "It's certainly been a busy week, and I'm glad to be here." Despite the drama of the hearing, the four tech giants, which all announced earnings on Thursday, posted big numbers.

Google this week also made big decisions about its work force of roughly 200,000 people. Pichai on Monday announced that the company would let its employees work from home until at least July 2021. He reportedly made the decision in part because of the uncertainty around schools reopening. Pichai also said he wanted to give employees the flexibility to plan ahead, as well as sign full-year leases in other places if they wanted. 

Porat on Thursday conceded that the changes could impact the company's culture. "We believe in collaboration. Serendipity is key to innovation," she said. "What we're looking at is really how to reimagine what the workplace will look like."

See also: The best smart home devices of 2020: Google and Amazon battle to control your home