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pww.comAlphabet Inc., Q1 2020 Earnings Call, Apr 28, 2020 - NasdaqGS:GOOGL

NasdaqGS:GOOGL

Jim Friedland;Director of Investor Relations [Executives] 💬

Jim Friedland, the Director of Investor Relations, made the following statements during the Alphabet Inc. Q1 2020 Earnings Call:

  1. Introduction:

    • Thanked participants for joining the call.
    • Introduced the call and handed it over to Sundar Pichai and Ruth Porat.
    • Provided a disclaimer about forward-looking statements and the risks involved.
    • Mentioned the availability of a reconciliation of non-GAAP to GAAP measures in the earnings press release.

  2. Safe Harbor Statement:

    • Noted that some statements made during the call may be considered forward-looking.
    • Stated that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially.
    • Directed listeners to refer to the risk factors discussed in the company’s most recent Form 10-K filed with the SEC and the Form 10-Q for the quarter ended March 31, 2020, expected to be filed later that day.

  3. Financial Measures:

    • Indicated that the call would include both GAAP and non-GAAP financial measures.
    • Mentioned the availability of a reconciliation of non-GAAP to GAAP measures in the earnings press release.
    • Directed listeners to the company’s Investor Relations website at abc.xyz/investor for the earnings press release.

  4. Handover to Sundar Pichai:

    • Announced that he would be handing over the call to Sundar Pichai, CEO and Director of Alphabet.

  5. Closing Remarks:

    • Thanked everyone for joining the call.

    • Looked forward to speaking with participants on the second quarter 2020 call.

    • Ended the call by thanking everyone and wishing them a good evening.

Sundar Pichai [CEO & Director] 💬

During the Alphabet Inc. Q1 2020 Earnings Call, Sundar Pichai, CEO & Director, covered several topics. Here’s a detailed summary of his remarks:

Introduction

  • Acknowledgment of the Impact of COVID-19:
    • Sundar expressed gratitude towards essential workers, healthcare professionals, and those working to combat the pandemic.
    • He recognized the uncertainty surrounding the path to recovery and emphasized the importance of managing the spread of the virus.

Key Points

  • Digital World Response to the Pandemic:
    • Sundar highlighted that the pandemic is occurring in a digital world, enabling some semblance of normalcy through remote work, online shopping, and telemedicine.
    • He mentioned the use of newer technologies like AI, Bluetooth exposure notifications, and 3D printing to fight the disease.
    • He predicted that once the emergency passes, the world will not look the same, with changes in social norms and businesses looking to reinvent their operations.

Areas of Discussion

  • Marshalling Resources and Product Development:

    • Google has been working with healthcare providers and authorities to combat the virus, including community mobility reports, testing, and partnerships for ICU bed availability and ventilator supplies.
    • Efforts have been made to provide accurate information through Google Search and YouTube, including removing violating content and raising authoritative content.
    • Support has been provided to small businesses and news publishers through grants, loans, and ad credits.

  • Product Usage During the Pandemic:

    • People are relying on Google services more than ever, with significant rises in search activity, Android app downloads, YouTube watch time, and usage of Google Classroom and Chromebooks.
    • Google Meet has seen a significant increase in usage, surpassing 3 million new users daily and reaching over 100 million daily meeting participants.

  • Business Performance:

    • The first two months of the quarter were strong for the advertising business, but there was a significant and sudden slowdown in March.
    • Recovery in ad spend will depend on a return to economic activity.
    • The cloud business is more diversified and resilient, with strong growth in Google Cloud and G Suite.

  • Focus for the Rest of the Year:

    • Sundar outlined four key areas of focus: creating helpful products, providing trusted experiences, executing at scale, and creating sustainable value.
    • The company will continue to invest in long-term priorities but will be thoughtful in the short term, slowing down the pace of hiring and recalibrating investments in areas like data centers and non-business essential marketing and travel.

Closing Remarks

  • Sundar thanked the employees for their efforts and emphasized the company’s commitment to supporting users, communities, and partners.

Additional Points

  • Hardware:
    • Sundar mentioned a decline in device activations due to falling consumer demand globally.
    • He expressed excitement about the product roadmap ahead, including the launch of Pixel Buds 2.

Transition to Ruth Porat

  • Sundar concluded his remarks by handing over to Ruth Porat for a detailed financial review.

Ruth M. Porat [President & Chief Investment Officer] 💬

Ruth M. Porat, President & Chief Investment Officer, discussed several key points during the Alphabet Inc. Q1 2020 Earnings Call:

  1. Financial Results Overview:

    • Total revenues were $41.2 billion, up 13% year-on-year and up 15% in constant currency.
    • The quarter's performance was a tale of two quarters, with strong results in January and February followed by an abrupt decline in March due to the global response to COVID-19.
    • APAC saw a more muted decline compared to the rest of the world.
    • Exchange rate movements resulted in a modest headwind to reported revenues.

  2. Key Expense Lines:

    • Total cost of revenues, including Traffic Acquisition Costs (TAC), was $19 billion, up 19% year-on-year.
    • Other cost of revenues was $11.5 billion, up 26% year-over-year, driven by Google-related expenses.
    • Operating expenses were $14.2 billion, with headcount growth being the largest driver of year-on-year growth for R&D and sales and marketing expenses.
    • General and administrative expenses saw growth primarily due to a reserve for estimated credit deterioration as a result of COVID-19.
    • Stock-based compensation totaled $3.2 billion.
    • Headcount was up 4,149 from the fourth quarter, with the majority of new hires being engineers and product managers.

  3. Operating Income and Margins:

    • Operating income was $8 billion, down 4% year-over-year, excluding the impact of the EC fine in the first quarter of the previous year.
    • Operating margin was 19%.

  4. Capital Expenditures and Cash Flow:

    • Cash CapEx for the quarter was $6 billion.
    • Operating cash flow was $11.5 billion with free cash flow of $5.4 billion.
    • $8.5 billion was repurchased in shares.
    • Cash and marketable securities stood at approximately $117 billion at the end of the quarter.

  5. Google Segment Financial Results:

    • Revenues were $41 billion, up 14% year-over-year.
    • Google Search and other advertising revenues were $24.5 billion, up 9% year-over-year.
    • YouTube advertising revenues were $4 billion, up 33% year-over-year.
    • Network advertising revenues were $5.2 billion, up 4% year-over-year.
    • Google Cloud revenues were $2.8 billion for the first quarter, up 52% year-over-year.
    • Other revenues were $4.4 billion, up 23% year-over-year.
    • Total Traffic Acquisition Costs (TAC) were $7.5 billion or 22% of total advertising revenues.
    • Google operating income was $9.3 billion, up 1% versus the previous year, with an operating margin of 23%.
    • Google accrued CapEx for the quarter was $5.7 billion.

  6. Other Bets Segment:

    • Revenues were $135 million, primarily generated by Fiber and Verily.
    • Operating loss was $1.1 billion for the first quarter.

  7. Impact of Global Crisis:

    • Remained optimistic about the underlying strength of the business over the long term.
    • Anticipated that the second quarter would be difficult for the advertising business.
    • Noted that the timing of recovery in advertising spend would be correlated with macroeconomic performance.
    • Expected a deceleration in headcount growth that should start to be visible in the third quarter and continue into the fourth quarter.
    • Anticipated a modest decrease in the level of total CapEx in 2020 compared with the previous year, with a reduction in global office facility investments and data center construction delays.

  8. Efficiency Efforts:

    • Slowing the pace of hiring and reducing some categories of marketing spend.

    • Enhancing machine utilization.

    • Continued commitment to investing in long-term opportunities, including Search, machine learning, and Google Cloud.