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Alphabet sees rough patch ahead as COVID-19 hits digital ad spend

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Alphabet sees rough patch ahead as COVID-19 hits digital ad spend
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San Francisco: After weathering the coronavirus pandemic in the first quarter, Google's parent company Alphabet is almost certain about really tough times ahead as advertising spend has nosedived while billions of users are only searching for the coronavirus-related queries and not about commercial ones.

In an analysts call after reporting Q1 results late Tuesday, Ruth Porat who is Chief Financial Officer of Alphabet and Google said that in order to gauge the ongoing potential financial impact to the business from COVID-19, a key signal to monitor is macroeconomic performance which is tended to be correlated with advertising spend.

"As of today, we anticipate that the second quarter will be a difficult one for our advertising business," Porat said late Tuesday.

In March, revenues began to decline and entered the month at a 'mid-teens percentage decline in year-on-year revenues'.

"Although, users' search activity increased, their interest shifted to less commercial topics. In addition, there was also reduced spending by our advertisers," admitted Porat.

The second quarter is going to be very difficult for many tech giants as there is a downturn in the global web advertising market.

Alphabet and Google CEO Sundar Pichai said that overall, recovery in ad spend will depend on a return to economic activity.

"There are 2 key aspects of our business that give us confidence about the future. First, as we saw after 2008, one of the strongest features of Search is that it can be adjusted quickly, so it's relatively easier to turn off and then back on, and marketers see it as highly cost effective and ROI based," Pichai emphasized.

The company which posted $6.8 billion in profit said at the inception of the crisis, the increase in user interest was for information about COVID-19 and related non-commercial topics.

"Although we have seen some very early signs of recovery and commercial search behaviour by users, it is not clear how durable or monetizable this behaviour will be," added Porat.

"Although users may not be focused as much on purely commercial activities right now, over the long term, the value we provide to billions of users globally serves us well. Our previous investments in technical infrastructure ensure that we have the capacity and resilience to meet the increased demand from our users in this extraordinary time," the Alphabet CFO noted.

The company said it is redoubling efforts to help its advertising customers and partners by sharing insights and developing new tools to keep them connected to their customers and help them be best positioned for recovery.

As the impact of COVID-19 came into view, Google delayed some ad launches and prioritized supporting customers as many adjusted their strategy.

"We are focused on products where we can help most advertisers and merchants during the crisis," said Pichai.

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