Google's ad revenue falls 8% for 1st decline in 26-year history

Dive Brief:

Google's total advertising revenue fell 8% to $29.9 billion in Q2 from a year earlier as the pandemic's economic fallout weighed on marketers' media spending, according to a quarterly report parent company Alphabet shared Thursday. It was first time in the search giant's 26-year history that its ad revenue had declined from the prior year, the Wall Street Journal reported.
YouTube eked out a 5.8% gain to $3.8 billion in ad revenue, a significant slowdown from the 33% lift the video-sharing site saw in Q1, and the 36% growth for all of 2019. Alphabet in February disclosed YouTube's ad revenue for the first time, indicating how the site had become a key source of the overall company's ad revenue growth.
Alphabet's total revenue slipped 1.7% to $38.9 billion, but its growing cloud computing business helped to offset bigger declines in ad sales. Traffic acquisitions costs (TAC), which the company pays other companies to drive traffic to its sites, dropped 7.5% to $6.7 billion.

Dive Insight:

Google's slide in ad revenue shows how a pandemic-related pullback in media spending is affecting companies in different ways. Twitter last week also reported a drop in Q2 ad revenue, contrasting with the gains reported this week by Facebook, Amazon and Snap. However, Google's digital ad business is bigger and more mature than those of its rivals, making its prior growth rates harder to achieve even when economic conditions are better.

YouTube was a notable bright spot, though its growth slowed significantly from prior periods. The results follow a forecast last month by GroupM, the media-buying unit of ad giant WPP, that predicted the global digital advertising market this year would shrink 2.3% and that search advertising would fall 2.6% to $109 billion due to the pandemic.

Alphabet's management three months ago had hinted that Q2 results would be lackluster. At that time, CFO Ruth Porat said ad revenue was on course to fall by a "mid-teens percentage" in March from a year earlier, but that it had showed signs of stabilizing in April. She also said YouTube's ad revenue growth was in the "high single digits." The final results for Q2 indicate that the company did see gradual improvement as the period progressed and revenues rebounded slightly. By the end of June, advertising revenue was flat with the prior year, Porat said in yesterday's conference call with analysts, and she expressed caution about the near-term outlook.

"As we progressed through the second quarter, we saw a gradual return in user search activity to more commercial topics, and then that was followed by an increase in spending by advertisers," she said. "We do believe it's premature to say we are out of the woods given the fragile nature of the macro environment."

Alphabet reported results a day after CEO Sundar Pichai was among technology executives who testified in a congressional hearing about their possibly anticompetitive business practices. He faced questions about a litany of issues including Google's dominance in digital advertising exchanges, prioritization of its services in search results, content-scraping practices and possible political bias. Prosecutors in the Justice Department expect to file in the coming months an antitrust suit that will allege the company monopolizes the advertising technology market, among other accusations, Politico reported.