Google Cruises On Digital Ad Resurgence And Retail Client Gains

Alphabet earningsAlphabet reported total revenue of almost $61.9 billion in Q2 2021, a 62% year-over-year increase. The company’s Q2 profit jumped from $7 billion in 2020 to $18.5 billion this year.

The eye-popping growth rate is misleading. Q2 last year was a disaster; The first time Alphabet (or Google before that) ever reported a yearly revenue decline. On top of the pandemic gutting last year’s revenue, Google unexpectedly recorded nearly $1 billion in savings when its server equipment outpaced expectations in terms of its usable lifespan, according to CFO Ruth Porat.

She cautioned against forecasting growth rates based on the strong return of digital ad revenue in the first half of this year, considering rising coronavirus case rates could dent that recovery and the increase in advertising may not continue at this pace.

Even with that grain of salt, though, it was a big quarter for Google.

One investor noted that even looking at two-year growth rates, Google Search hasn’t seen this level of growth in many years.

“Our strong second quarter reflects elevated consumer online activity and broad-based strength in advertiser spend,” Pichai said.

google cruises on digital ad resurgence and retail client gains

But there are particular advertising growth opportunities that stand out in Google’s earnings.

The big one is retail and ecommerce.

Chief Business Officer Philipp Schindler said retail was the biggest growth driver for the company’s search ad revenue, which jumped from about $16.2 billion in Q2 2020 to $29.2 billion. Retail was also a major contributor to overall advertising gains.

The Google Cloud Platform has onboarded many new retail clients, Schindler said. Those retailers have increasingly valuable search businesses since more of their customers are shopping online. He also pointed to integrations in the past quarter with ecommerce site operators and payment processors, namely Shopify, Square, GoDaddy and WooCommerce.

YouTube also has “a lot of headroom for ecommerce,” said CEO Sundar Pichai. In Q2, the company made it possible for sellers or creators on YouTube to upload a product catalog that displays alongside content Any payment processing partner or Google can convert an immediate sale.

YouTube on its own is a major growth channel. YouTube’s Q2 ad revenue jumped from $3.8 billion last year to $7 billion.

Aside from the shopping integrations, more than 120 million people watched YouTube on a smart TV this quarter, Schindler said. That’s up from 100 million a year ago.

“CTV is the fastest-growing consumer service we have,” he said.

Google also emphasized its partnership with creators and publishers: In the past three months, Google paid YouTube creators more than it ever has in any quarter, according to Pichai. Google also sent more traffic to third-party sites in its network than in any previous quarter – a strong growth sign considering the Q2 summer season is typically not the highest-traffic period on the internet.

Despite the huge growth in search revenue already this year, Schindler said there’s still plenty of low-hanging fruit, particularly in the commerce vertical category. Sponsored product ads, which accrue to Google search revenues, are one area with recent success. Google also stands to pull in retail marketing budgets that historically went to coupon campaigns and local store sales.

“Eighty-nine percent of commerce still happens offline,” he said. “There’s still room to tap into budgets that traditionally were used for things like local advertising.”

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