Google Feels Earnings Impact From Russian War on Ukraine

Alphabet’s 2022 Q1 earnings call showed that Russia’s attack and war on Ukraine is having an impact on revenues and should continue into the second quarter.

Some of the negative impact on Google/Alphabet’s earnings is due to the fact that Alphabet has suspended most business activities in Russia.

But a second source of negative impact is due to the withdrawal of advertisers in Europe, particularly in advertising spend on the YouTube platform.

Google Pause on Commercial Activity in Russia

Google announced on March 3, 2022 that they were suspending ad sales in Russia, as reported Reuters,

A Google spokesperson issued this statement at the time:

“In light of exceptional circumstances, we are blocking Google Ads in Russia…”

That move followed a week after the suspension of payment-based services, including subscriptions, in Russia on March 10, 2022.

The suspension of Russian advertising was also extended so that Google was now barring Russian-based companies from advertising outside Russia, effectively separating Russian businesses from conducting any form of advertising-based business inside or outside Russia. Had been.

Google Published a blog post on 10 March by stating:

“Following our announcement last week that we have paused Google Ads in Russia, we have now halted most of our business activity in Russia – including advertising on our properties and networks globally for all Russian-based advertisers, new Cloud sign up, payment functionality for most of our services, and monetization features for YouTube viewers in Russia.

We can confirm that our free services like Search, Gmail and YouTube are still working in Russia.

We will continue to monitor developments closely.”

Morgan Stanley analyst Brian Novak asked:

“… Ruth, was wondering, can you talk to us about the size of the advertising business growth in the first quarter, understanding that there is some uncertainty around Ukraine, etc?”

Alphabet Chief Financial Officer Ruth Porat replied:

“… Second quarter results will continue to show that we have suspended most of our commercial activities in Russia.

And then I looked at the impact of forex. So as we’re looking at it generally, we feel good about what we’re doing in the business, some of the key points that I mentioned there. ,

Suspension of Russian commercial activity and European advertising pullback

Next, Goldman Sachs analyst Eric Sheridan asked a follow-up question about weakness in brand advertising and whether there was a connection between the Russian war on Ukraine and advertising weakness in some parts of the world.

Sheridan asked:

“Thanks a lot for taking the question. Maybe a follow-up to Brian’s question.

Other industry players have spoken of a weakness in brand advertising globally in the quarter you just reported.

Did you look at any of that from a volatility perspective, especially around the war in Ukraine sometime in March? ,

Alphabet Chief Financial Officer Ruth Porat replied:

“In terms of revenue, the most direct impact is the fact that we suspended most of our commercial activities in Russia, as we announced in early March.

And to your question, about 1% of Google revenue in 2021 was from Russia, and that was mainly from advertising.

In addition, from the start of the war, advertiser spending decreased, especially on YouTube in Europe.”

European vs. Asian region income

In the following question the analyst uses abbreviations for global fields.

The abbreviations and their meanings are:

  • EMEA = Europe, Middle East and Africa
  • APAC = Asia-Pacific

Michael Nathanson, MoffettNathanson analyst asked:

“And then for Ruth, it’s an odd quarter because if you look at APAC, the APAC region underperformed EMEA, which had Russia and Ukraine.

Is there anything you want to say about Asia Pacific in the quarter, why it could have been softer? Or any other product that could cause the quarter to be slow for APAC? ,

Ruth Porat replied:

“… in Europe, as you mentioned in your question, a slightly larger impact from the war in Ukraine than in other regions, and then the larger delta between fixed and floating actually reflects a meaningful strengthening of the euro versus the dollar. Is.

I think at the core of your question with respect to APAC, the main thing is to take you back to a year ago, we were hitting a substantial 39% growth rate in constant currency.

And so it really reflects that big growth in this first quarter relative to the performance of more muted ads in APAC, and that really takes you back to last quarter. ,

The impact of the Ukraine war on the alphabet

Alphabet’s CFO noted that a percentage of revenue was Russia-related advertising and that revenue was directly affected by Alphabet’s decision to pull most commercial activity out of Russia. This is potentially quite significant revenue, so it is clear that the Russian war on Ukraine is having a direct impact on Alphabet.

An indirect effect is the reduction in advertising in Europe, which has focused primarily on YouTube ad spend in Europe.


Read a transcript of the Alphabet Q1 2022 earnings call question and answer session

View Full Alphabet Q1 Earnings Call

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