What happened
Shares of Alphabet (GOOG +0.75%) (GOOGL +0.80%) climbed nearly 16% in April as the S&P 500 gained more than 12%. The optimism in the broad market and Alphabet coincided with a better outlook for the length of coronavirus stay-at-home orders in several states across the U.S.
So what
Alphabet reported earnings in late April, and the results were better than expected. Revenue rose 13% from the same period a year ago. As people all around the world were staying home because of the coronavirus pandemic, many turned to YouTube for entertainment. The YouTube ads segment saw revenue jump by 33%.
Although there was a significant increase in Google Search usage, the activity shifted to less commercial topics. Additionally, there was reduced spending from advertisers. With most nonessential businesses closed because of the outbreak, there is a cutback in products and services to advertise.
ALPHABET APPS ARE EXPERIENCING INCREASED USAGE. IMAGE SOURCE: GETTY IMAGES.
Now what
To counter the slowdown in ad spending, Alphabet is scaling back the rate of hiring and its planned capital expenditures (or capex) for the year. The company now expects capex to decrease slightly in 2020. The reductions are coming mostly from lowering global office facility investments.
Slowing down the pace of hiring would require less office space to house those employees. Furthermore, as many of its employees are working from home during the pandemic, perhaps the company is expecting to use remote working even after the coronavirus pandemic has run its course.
Many states in the U.S. are making plans to lift stay-at-home restrictions, which is increasing hopes for a return to some level of economic normalcy. During the first-quarter earnings conference call, Alphabet CEO Sundar Pichai said, "A return to normal economic activity depends on how effectively societies manage the spread of the virus. There is no one size fits all, and the timing and pace of recovery will vary from location to location."
The resilience in revenue during a very difficult quarter and hope for a cautious lifting of stay-at-home orders have Alphabet investors hopeful for future gains.
