Q 2 2020

Everything the Q2 2020 Financial Results of Tech Giants Have to Say

Big Tech giants have revealed their quarter financial performance in these turbulent times. Here are the Q 2 financial performance, insights, and earnings details:

Alphabet

Google’s parent company Alphabet beat the expectations for its Q 2 earnings despite a dip in the advertising. However, it marked its first year-over-year revenue decline in its history as the pandemic slowed the economic activity and advertisers pulled back their spending. Though there is a slowdown in the advertising growth, Google pointed to newer long-term opportunities in cloud computing and artificial intelligence, YouTube, and shopping. For the rest of the year, in anticipation of slowdown, the company has cut marketing spend by half and also freezes hiring.

Google is also facing antitrust investigations of its search and Android business and is expected to result in a legal action that could cover issues from search to digital advertising space in the coming months.

By the numbers:

• $2.6 billion declines in year-on-year advertising revenue.
• Google’s total quarterly revenue $29.9 billion of $38.3 billion is from advertising.
• YouTube ad revenue increased 6% to $3.8 billion.
• Google Cloud sales grew 43% to $3 billion.
• Total Net income reported $6.96 billion compared to $9.95 billion in the year-ago quarter.

Response:

Though there is a slowdown in the advertising growth, Google pointed to newer long-term opportunities in cloud computing and artificial intelligence, YouTube, and shopping. 

For the rest of the year, in anticipation of slowdown, the company has cut marketing spend by half and also freezes hiring. Ruth Porat, Chief Financial Officer of Alphabet and Google said,

“We continue to navigate through a difficult global economic environment.”

Consumers are returning to more commercial search queries and advertisers are gradually increasing their search spending towards the end of the quarter. However, Ruth Porat cautioned,

“We believe it is premature to gauge the durability of recent trends, given the obvious uncertainty of the global macro environment.”

Google is also facing antitrust investigations of its search and Android business and is expected to result in a legal action that could cover issues from search to digital advertising space in the coming months.

Amazon

The e-commerce giant delivered some eye-popping numbers during Q2 beating earnings expectations and reported a double-digit revenue year over year. With the flurry of online orders amid the coronavirus pandemic, sales soared by 40%. The online grocery sales tripled Y-o-Y and the grocery delivery capacity by more than 160%. The demand for online shopping sky-rocketed and to fulfill the demand, it hired 175,000 more people in the period.

By The Numbers:

• Revenue reported is $88.91 billion vs. $81.56 billion expected, the strongest and unexpected annual growth in years.
• Amazon spent $4 billion on coronavirus related measures as promised in Q1 and expects to spend another $2 billion during Q3 towards COVID-19 mitigation efforts.
• Amazon Web Services (AWS), its cloud computing service grew 29% compared to 33% in Q1.
• Amazon’s Other’ category that primarily consists of the advertising business ( a small slice of Amazon’s total revenues) was up 41% Y-o-Y and subscription services that include revenues from Prime membership also up 29%.

Response:

Amazon CEO Jeff Bezos said in a statement, 

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe.”

As reported by CNBC, Amazon CFO Brian Olsavsky said consumer demand in the pandemic shifted from consumables and groceries to categories “not so profitable” and normal mix of products. He said,“Amazon could ship a lot more.”

 Amazon will conduct a Prime Day shopping event in the fourth quarter. 

Facebook 

Despite the Congress probe, pandemic, and an anti-hate boycott from advertisers, Facebook beats all market expectations, revenue grew by 11%. This speaks volumes about the strength of the company’s appeal to marketers despite serious challenges. The top 100 advertisers’ that boycotted Facebook over its hate speech and misinformation policies constituted less than 20% of Facebook’s ad revenue. However, the boycott by large advertisers couldn’t rally small businesses who are reliant on Facebook.

By The Numbers:

• 3.14 billion monthly users across all apps(Facebook, Messenger, Instagram, and Whatsapp), compared to 2.99 billion in the previous quarter.
• 1.79 billion Daily Active Users on Facebook, up 12% year on year
• 2.7 billion Monthly Active Users on Facebook, up 12% year on year.
• Revenue: $18.7 billion, up 11% year on year.
• It has more than 9 million active advertisers.

Response:

The company said in a statement, 

“We are seeing signs of normalization in user growth and engagement as shelter-in-place measures have eased around the world, particularly in developed markets where Facebook’s penetration is higher.”

Mark Zuckerberg said on a call with investors,

“Some also seem to wrongly assume that our business is dependent on a few large advertisers. The biggest part of our business is serving small businesses.” 

Two new initiatives were announced for small businesses- Facebook Shops and in-messenger commerce.

“This really is primarily focused on small businesses, individual entrepreneurs. Small businesses are the biggest part of our business, not large businesses.”

The company forecasts its revenue growth rate for Q3 of about 10%. while taking into account ongoing headwinds including macroeconomic uncertainty, ad boycott (formally began in July, after Q2 ended), regulations around ad targetting, and measurement.

Pinterest

Pinterest revenue grew 4% on user growth and advertisement. Users who started using Pinterest during Covid-19 continued to have engagement even after lockdown restrictions eased out at a few places. It reached a milestone of crossing more than 400 million monthly users, witnessing a strong growth from users under 25 who grew twice as fast as users over 25. The total advertising growth accelerated year over year in Q2 and small and medium-sized advertisers emerged as a key driver that made up nearly half of its revenue. New features like Shop Tab and the ability to shop from boards are worked upon to make content search easy for the Pinners.

ByThe Numbers: 

• Total daily video views (organic+ paid) grew over 150% year over year.
• Catalog from business increased in Q2 by more than 350% from Q1.
• Revenue from conversion optimization or oCPM, shopping ads, and auto bids continues to grow faster than overall revenue, and attributed conversions grew 2.7x year over year. 80% of CPC revenue is going through the auto bid.
• Users visiting shopping only surfaces grew more than 50% in the first half of 2020 and product only searches grew 8x. 

Response:

As per CNBC, the company said,

“People needed Pinterest in Q2. They needed a service that helped them adjust to radically changed circumstances — one that inspired them to cook at home, build vegetable gardens, plan activities for their kids and set up remote offices and home gyms, to name just a few typical COVID-19-related use cases we saw during the quarter.”

Advertisers have increased budgets on Pinterest because of its strong commercial intent where advertisers get their traction without displaying ads with any controversial content.

Omnicom Group

Omnicom revenues decline 23% due to a decline in spending by the clients. In order to offset the decline in revenue 6,100 jobs were cut across its network, froze hiring, eliminated salary increases, implemented voluntary pay cuts across its agencies, and participated in government subsidy programs in 35 markets. It also shed 1 million square feet of real estate space as it terminated leases across markets in order to mitigate the impact of the pandemic. It is expected that these actions will result in the repositioning costs for the quarter of $278 million that will generate approximately $500 million in annualized savings.

Advertising revenue decline as the revenue of the programmatic business decreased where it offered principle-based buying options for clients.

By The Numbers:

• Reported revenue was $2.8 billion, down $854 million organically, or 23% from Q2 2019.
• Advertising business declined 26.6% and Third-party service costs which fluctuate directly with changes in revenue declined by approximately $400 million.
• Revenues declined in all disciplines except healthcare which grew 3.2% organically. 
• CRM execution and support include events and field marketing businesses, which declined 27.6%.
• CRM consumer experience declined 25.6%, and PR declined 14%,

Response:

CEO John Wren said on the earnings call, 

“The quarter posed extraordinary challenges. he effect of COVID and related lockdowns were unprecedented.”

The main reason for declines in Omnicon’s services was because the client from travel, retail, auto, and other affected verticals paused or cut spending whereas technology and telecom fared better.

After a tough and bad Q2, the company looks forward to the second half. The recovery may not be immediate but the impact will vary regionally and by vertical.  Wren said,

“We think the worst is behind us, with Q2 being the worst point for year-over-year revenue declines.”

The company added a few new clients like Air France’s global agency of record account and Clorox’s media business in the United States.

Apple

Apple reports a slow down in revenue growth as the demand and supply was impacted due to the pandemic. However, it had reported a better quarter than Wall Street expected, showing growth across all product lines including iPhones and reflected growth across all geographic segments.

By The Numbers:

• Revenues rose 11% to $59.7 billion against the estimated revenue of $52.6 billion.
• Apple reported iPhone revenue of $26.42 bn, a growth of 1.66%.
• The biggest growth was in iPad revenue at $6.58bn up from $4.48 bn.
• Apple reported service revenue of $13.1 bn against $11.5 bn the same period in the last year.

Response:

Apple CEO Tim Cook during a call said, 

“Amid the most challenging global environment in which we’ve ever operated our business we’re proud to say that Apple grew during the quarter.”

The company’s subscription service and Apple Tv+ also performed well as most people watched content under lockdown. Apple did not issue guidance for the third quarter. 

Read  more on Q1 results: Where Do These Global Companies Stand At The End Of Q1: Performance, Insights, And Statistics