Google Feels Earnings Impact From Russian War on Ukraine

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

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

But the other source of negative impact is due to declining advertisers in Europe, most notably in ad spend on the YouTube platform.

Google ceases business in Russia

Google announced on March 3, 2022 that it would suspend ad sales in Russia, as reported by Google Reuters.

A Google spokesperson issued this statement at the time:

“In view of the exceptional circumstances, we will be pausing Google Ads in Russia…”

The move was followed one week later by the suspension of payment-based services, including subscriptions, in Russia on March 10, 2022.

The Russian advertising suspension has also been expanded so that Google now bans companies based in Russia from advertising outside of Russia, effectively cutting off Russian companies from conducting any type of ad-based business either inside or outside Russia.

The Google Posted in a blog on the 10th of March Mentionsed:

“Following our announcement last week that we were pausing Google Ads in Russia, we have now suspended the vast majority of our business activities in Russia – including advertising on our properties and networks globally for all advertisers based in Russia, new cloud subscriptions, 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 still work in Russia.

We will continue to monitor developments closely.”

Morgan Stanley analyst Brian Nowak asked:

“…Ruth, asking, can you talk to us at all about what the ad business growth looks like during the first quarter, do you understand there’s some uncertainty around Ukraine, et cetera?”

Ruth Porat, Chief Financial Officer of Alphabet, replied:

“…Our second quarter results will continue to show that we have suspended the vast majority of our business activities in Russia.

Then I noticed the effect of foreign exchange. So when we look at it overall, we feel very good about what we’re doing in the business, which are two key points that I talked about there.”

Russian business suspension and European advertising withdrawal

Next, Goldman Sachs analyst Eric Sheridan asked a follow-up question about poor brand advertising and whether there is any correlation between Russia’s war on Ukraine and poor advertising in some parts of the world.

Sheridan asked:

Thanks so much for answering this question. Maybe one follow up to Brian’s question.

Other industry players called out pockets of weakness in brand advertising globally in the quarter I just reported.

Did you see any of that from a volatility standpoint, particularly around maybe the war in Ukraine for a while in March? “

Ruth Porat, Chief Financial Officer of Alphabet, replied:

In terms of revenue, the most direct impact is the fact that we have suspended the vast majority of our business activities in Russia, as we announced in early March.

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

In addition, since the start of the war, there has been a decline in advertiser spending, particularly on YouTube in Europe.”

European region earnings vs. Asian

In the next question, the parser uses abbreviations for global regions.

The abbreviations and their meanings are:

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

Michael Nathanson, Moffett Nathanson Analyst asked:

“Then for Roth, it’s quarterly because if you look at Asia Pacific, Asia Pacific underperformed EMEA, which had Russia and Ukraine there.

Is there anything you want to talk about about Asia Pacific this quarter, why could it have been softer? Or any other product that may have led to a quarterly slowdown in Asia Pacific? “

Ruth Porat replied:

“…in Europe, as you indicate in your question, the slightly larger impact of the war in Ukraine than in other regions, and then the large delta between constant and variable really reflects the meaningful strengthening of the dollar against the euro.

I think the crux of your question in terms of Asia Pacific, the key thing there is to take you back to last year, we were having a great 39% growth rate in constant currency.

And so that really reflects that significant growth compared to the performance of the more muted advertising in Asia Pacific in the first quarter of this quarter, and really brings you back to last quarter.”

The impact of the Ukraine war in the alphabet

Alphabet’s CFO indicated that one percent of revenue was related to advertising from Russia and that revenue was directly affected by Alphabet’s decision to pull the majority of business from Russia. That’s potentially quite a bit of revenue, so Russia’s war on Ukraine is clearly having a direct impact on Alphabet.

The indirect effect is due to the decline in advertising in Europe, which is mainly focused on ad spend on YouTube in Europe.

the quote

Read a copy of Alphabet Q1 2022 earnings related call questions and answer session

Watch the full Alphabet Q1 earnings call

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