This was a big week for Big Tech. On Wednesday, Apple (Nasdaq: AAPL), Facebook (Nasdaq: FB), Google (Nasdaq: GOOG), and Amazon's (Nasdaq: AMZN) CEOs all testified before Congress on antitrust. And, the next day, they all reported and handily beat earnings.
Out of these companies, Google's earnings beat was the least impressive. It topped expectations for earnings and revenue, but it didn't beat expectations for Google Cloud which has been the company's growth engine over the last few quarters. Additionally, the company posted its first revenue decline in history due to slowing ad spending.
Inside the Numbers
The company reported earnings per share of $10.13 vs estimates of $8.21. Revenue for the quarter at $38.3 billion was higher than the $37.4 billion estimates. Total ad revenue for the second quarter was $29.9 billion which was 8.4% lower than Q2 in 2019.
In terms of specific segments, two of Google's fastest-growing areas are YouTube and Google Cloud. Youtube revenue slightly beat at $3.81 billion vs estimates of $3.78 billion. However, Google Cloud revenue slightly missed at $3.01 billion vs $3.06 billion. The unit grew 43% which was a decrease from 52% in the previous quarter. Google is in third-place behind Amazon (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT) in cloud computing, although it's the fastest-growing.
One reason for the revenue miss was that Google said "commercial searches" by consumers were slightly lower than past quarters which attributed it to the economic weakness and coronavirus. However, CFO Ruth Porat said that "commercial searches" and ad spending were returning to normal levels by the end of the quarter.
In response to its decreased revenue, Google has instituted a hiring freeze and cut costs. However, the company is confident it can return to growth when the economy starts normalizing. Additionally, it has additional channels for growth with YouTube, cloud computing, artificial intelligence, as well as selling directly through Search.
Stock Price Impact
Google's stock was slightly higher after hours about 1% which is consistent with its mixed results. However, the stock has been a big winner so far, as it's up 51% from the March lows and recently made new, all-time highs. Going into its earnings, the stock had been consolidating in a tight range, following its breakout, which is typically a bullish pattern in uptrends.
So, it will be interesting to see how investors react to its first revenue drop in company history. If the stock is still seen as a growth stock, then the stock could see some selling as tends to happen. However, on a longer-term basis, Google still dominates search. As long as Internet use grows, its revenues and earnings will grow. On top of this solid franchises, it does have growth engines in YouTube and cloud computing, so dips will likely be bought.