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Alphabet Inc’s costs increase as revenues decline in the second quarter

Alphabet Inc (NASDAQ: COOG) (NASDAQ: COGL), Google’s parent company today reported second quarter earnings for fiscal year 2020. During the period, the company earned $ 38.9 billion in revenue, representing a 2% year-over-year decline. Despite the decline, which is the first for the company in its history, Alphabet still managed to beat analyst estimates for sales and earnings per share.

The company’s operating profit declined significantly year-over-year in the quarter, as operating costs were experienced at a time when consumer spending was hit hard by the corona virus pandemic. Today’s results come a day after Google’s CEO, Mr. Sundar Pichai, appeared before US lawmakers to explain allegations of anti-competitive behavior against his company.

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In addition to a year-on-year decline, Alphabet’s revenues also declined sequentially as the company made $ 41 billion in the previous quarter. The increase in operating expenses during the quarter was also reflected in a decrease in the operating margin for Alphabet. During the second quarter of fiscal 2020, the group’s operating margin was 17%, down 6% year-on-year and 2% consecutively.

The group’s net result was approximately $ 7 billion at the end of the previous quarter, as it reflected an annual decline of $ 3 billion and remained consecutively the same. Q2’s sales decline was fueled by declining net sales for Google Search, the bread and butter of the group that accounts for most of the profit. In the past three months, Google made $ 21 billion through Google Search, in an annual decline of $ 2 billion and a sequential decline of $ 3 billion.

Breakdown of Alphabet Inc’s revenues for the second quarter of fiscal year 2020 (Q2 FY2020)

YouTube ad and non-ad revenue grew in the quarter as they joined Google Could as the only segments of Alphabet’s revenue segment that showed no year-on-year declines in the second quarter. Successively, Google Cloud and other bets were the only operating segments to increase as revenue from Search, YouTube and other areas fell.

Towards Traffic Acquisition Costs (TAC), these declined both sequentially and year on year, driven by a slowdown in total spending in economies plagued by the current ongoing pandemic. A drop in these costs was normal during a quarter in which Google cut marketing and other expenses to address the economic slowdown around the world.

“We are working to help people, companies and communities in these uncertain times. As people increasingly turn to online services, our platforms – from Cloud to Google Play to YouTube – are helping our partners provide key services and support their businesses, “said Pichai in the press release. The executive was grilled on a wide variety of issues yesterday when he made it clear to lawmakers that employee opinion was only “one factor” in Google’s decision to withdraw from the Department of Defense (DoD’s JEDI contract) ) and that the company continued to work with government agencies through other projects.

Alphabet’s Class A and Class C shares have not declined in aftermarket trading, underscoring investor expectations for the decline.

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