Google’s Monster Q1 Earnings Results Signals Recovery Ramp-up

Adriana Lee
·5 min read

Knowing that eyes are locked on Google — whose performance serves as a sort of temperature check on how the economic recovery is going — parent company Alphabet reported earnings results on Tuesday that blew estimates out of the water.

The company reported revenue of $55.31 billion over the first three months of this year. For context, that comes close to its record over the holiday quarter of $56.9 billion. The latest revenue figure handily beats the consensus estimate of $51.68 billion, charting 34 percent year-over-year growth.

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Earnings per share, at $26.29, sailed far over analyst estimates of $15.88, and ad revenue, the fundamental core of Google’s business, swelled 32 percent to $44.6 billion.

YouTube ad sales didn’t meet the $6.9 billion they pulled in during the last quarter, edging slightly over $6 billion this spring. But that was still enough to beat expectations of $5.7 billion, and it amounted to a huge jump of 49 percent year-over-year.

“Over the last year, people have turned to Google Search and many online services to stay informed, connected and entertained. We’ve continued our focus on delivering trusted services to help people around the world,” said Alphabet chief executive officer Sundar Pichai in a statement. “Our Cloud services are helping businesses, big and small, accelerate their digital transformations.”

Google’s faith in its cloud business is underscored by the fact that it has begun breaking out sales figures for the division. Tuesday’s numbers are only the second time it has done so.

Google Cloud, which serves an array of business sectors and companies, including fashion brands and retailers, posted revenue of $4.05 billion in the quarter. While that means it’s technically still not profitable, it’s an immensely notable improvement over last quarter’s sobering $5.6 billion loss and represents a 46 percent jump from the $2.78 billion this time last year.

Now the company wants to keep the momentum going. In addition to focusing the division on things like media partnerships, as well as supporting COVID-19 efforts, Google wants to dive even further into retail.

According to Philipp Schindler, Google’s chief business officer and senior vice president, retail is a strong area for the company, and it has taken a number of steps over the past year to “accelerate an open retail ecosystem,” he said on the earnings call.

“We made product listings free, removed commission fees and opened our shopping platform to Shopify and PayPal,” he continued. “We’re also helping retailers lean into some key opportunities such as innovating and omnichannel as the line between digital and physical retail continues to blur. And tapping into commercial content on YouTube and other surfaces.”

Schindler called the move to unit offline and online retail Google’s “sweet spot,” with tools like search, maps and YouTube, as consumers looked for places nearby that offered services like curbside pickup. The company believes the trend isn’t changing: “Searches for local businesses are up 80 percent versus last year. Omnichannel is here to stay,” he added.

He spent several minutes talking about retail, in particular, citing as examples Dick’s Sporting Goods and Michael’s crafts stores, and how they amped up omnichannel offerings to grow e-commerce sales using search and maps. That’s just for starters.

“Google merchants can now pluck their product feeds right into their video action campaigns and early adopters are seeing huge results,” Schindler noted. He explained how one luxury cosmetics company leaned on product imagery from its Google Merchant Feed as an extension and saw a 68 percent conversion rate jump within three weeks. Now any merchant can do the same with one click in the Google Merchant center.

The Google executive is also bullish on direct response in YouTube and sees that as a “significant opportunity for innovation.”

The timing makes sense.

Last year, Alphabet didn’t experience the same level of out-performance that was seen across Big Tech. In fact, the company saw a small revenue decline. While it was only 2 percent, it was the first time in Google’s history. That wasn’t entirely a surprise — the company’s primary revenue driver, online advertising across search and YouTube videos, suffered a hobbling blow during the pandemic, as clients in travel, tourism and other major sectors essentially froze.

But now that vaccines have rolled out more broadly, the latest stimulus payments have reached many consumers and lockdowns are poised to relax — which may include non-essential travel to Europe as soon as this summer — the economy is showing more signs of life.

Clearly, Google wants to be part of the recovery, both for itself and for retailers.

Although that’s just one slice of a sprawling empire that extends to consumer devices, driverless cars, TV streaming and entertainment, and many other areas, the company clearly intends to stay focused on Google Shopping and Google Cloud.

“There’s this massive acceleration in e-commerce due to the pandemic,” he said. “Still more than 80 percent of commerce is still offline, so there’s a huge opportunity here across the world for us to tap into into those other budgets that were really traditionally used in a very different context. So there is plenty of room for growth here.”

In the near term, the company may be preparing a few more surprises for its developer conference in May, according to Pichai.

“I’m particularly excited that our Google IO is back this year, all virtual and free for everyone on May 18 through 28. We’ll have significant product updates and announcements and I invite you all to tune in,” he teased on the call.

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