Alphabet’s first-quarter 2022 earnings call showed that Russia’s attack and war on Ukraine is having an impact on revenue that should continue into the second quarter.
Some of the negative impact on Google/Alphabet earnings was due to Alphabet suspending most of its business activities in Russia.
But another source of negative impact is the pullback of European advertisers, especially ad spending on the YouTube platform.
Google suspends business activities in Russia
Google reportedly announced on March 3, 2022 that it would suspend ad sales in Russia Reuters.
A Google spokesperson issued this statement at the time:
“Due to the exceptional circumstances, we are suspending Google ads in Russia…”
A week later, Russia suspended payment-based services, including subscriptions, on March 10, 2022.
The Russian advertising moratorium has also widened, so Google now blocks Russian companies from advertising outside of Russia, effectively isolating Russian businesses from any kind of advertising business inside or outside Russia.
Google Posted March 10th illustrate:
“Following last week’s announcement of our suspension of Google ads in Russia, we are now suspending the vast majority of commercial activity in Russia – including our global offering to all Russian advertisers and advertising on the web, new Cloud registration, payment functionality for most of our services, and monetization for Russian YouTube viewers.
We can confirm that our free services such as Search, Gmail and YouTube are still operating in Russia.
We will continue to monitor developments closely. “
Morgan Stanley analyst Brian Novak asked:
“…Ruth, wondering, can you talk to us about the growth of the ad business throughout the first quarter, understanding that there is some uncertainty around Ukraine, etc.?”
Alphabet CFO Ruth Porat replied:
“…second quarter results will continue to reflect our suspension of the vast majority of business activity in Russia.
Then I noticed the impact of foreign exchange. So when we look at it in general, we feel good about what we’re doing in the business and that’s a couple of key points that I made there. “
Russian business activity suspended and European advertising pulled back
Next, Goldman Sachs analyst Eric Sheridan asked a follow-up question about whether there is any correlation between the weakness in brand advertising and Russia’s war on Ukraine and the weakness in advertising in some parts of the world.
Sheridan asked:
“Thank you so much for asking this question. Maybe a follow-up to Brian’s question.
During the quarter you just reported, other industry players pointed to some weaknesses in global brand advertising.
Did you see any of this from a volatility perspective, especially during the Ukrainian war for a while in March? “
Alphabet CFO Ruth Porat replied:
“In terms of revenue, the most immediate impact is that we have suspended the vast majority of business activity in Russia, as we announced in early March.
For your question, about 1% of Google’s revenue in 2021 will come from Russia, mainly from advertising.
Additionally, advertiser spending has fallen since the beginning of the war, especially on YouTube in Europe. “
Earnings in Europe and Asia
In the following questions, analysts use the acronyms for global regions.
The acronyms and their meanings are as follows:
- EMEA = Europe, Middle East and Africa
- Asia Pacific = Asia Pacific
MoffettNathanson analyst Michael Nathanson asked:
“Then it was an odd quarter for Ruth because if you look at Asia Pacific, Asia Pacific underperformed EMEA, which has Russia and Ukraine.
Do you have anything to say about Asia Pacific this quarter? Why might it be milder? Or any other products that might cause a quarterly slowdown in Asia Pacific? “
Ruth Porat replied:
“…In Europe, as you pointed out in your question, the impact of the war in Ukraine was slightly larger than elsewhere, and then the considerable difference between fixed and floating does reflect meaningful dollar strength against the euro.
I guess the core of your question about Asia Pacific is, mainly to bring you back to a year ago, we were growing at a high 39% in constant currency.
So that does reflect decent growth in Asia Pacific relative to the weaker ad performance in Q1, which really brings you back to the previous quarter. “
Impact of Ukraine war on Alphabet
Alphabet’s chief financial officer noted that 1% of its revenue was related to advertising from Russia, which was directly impacted by Alphabet’s decision to withdraw most of its business activities from Russia. That could be a considerable amount of revenue, so it’s clear that Russia’s war on Ukraine is having a direct impact on Alphabet.
The indirect impact came from a pullback in European advertising, mostly on YouTube ad spend in Europe.
Citation
Read the transcript from the Q&A session of Alphabet’s Q1 2022 earnings call
