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Alphabet Inc. today provided a positive sign of the impact the coronavirus pandemic will have on technology giants, reporting lower profits in its first quarter but still managing to eke out better-than-expected revenue growth.

The parent of search ad giant Google LLC reported a first-quarter net profit of $6.84 billion, or $9.87 cents a share, well below the $10.68 average from analysts polled by FactSet and down from $11.90 a share a year ago. Revenue rose 13%, or 15% in constant currency, to $41.16 billion, beating the consensus $40.82 billion.

Google’s cloud operation fared better, partly thanks to the pandemic sending more companies racing to the cloud. Revenue in that unit rose 52%, to $2.78 billion, close to the 53% growth it showed in the fourth quarter, when it was broken out for the first time.

Most bets were off in the quarter because of the negative impact of the pandemic on advertising. Many businesses are shut down and hundreds of millions of people worldwide are under various shelter-in-place orders, so they can’t spend as much and there’s less need to advertise. But the decline in ads wasn’t as bad as investors had feared.

Alphabet’s shares rose more than 7% in after-hours trading, after falling 3%, to $1,232.59, in the regular session. Update: On Wednesday, shares were rising nearly 9%.

“Alphabet surprised many with its Q1 earnings, particularly with 13% revenue growth,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “What’s important to realize is that most of Google’s revenue was driven pre-Western world shutdown in March. The company doesn’t operate in China, which had an earlier shutdown.”

Even at that, Google Search ads along with a small amount of other revenue rose only 9%, to $24.5 billion, a big slowdown from 17% growth in the fourth quarter. “In March, we had a significant slowdown in ad revenues,” Alphabet Chief Executive Sundar Pichai (pictured) said on the earnings conference call.

As for Google’s core search ad business, Chief Financial Officer Ruth Porat said declines in revenue hit the mid-teens percentage by the end of March. Analysts are now forecasting relatively flat U.S. search ad spending for the year. EMarketer analyst Nicole Perrin had expected the company’s search ad results, which it doesn’t report directly, to reflect the overall market, which she thinks will come in between a 2.8% increase and a 0.2% decline from a year ago.

Still, Perrin said the decline in search ads wasn’t as severe as it could have been. “The deceleration to Google’s display ad businesses, including Google Display Network and YouTube, was lower, and again fell in line with our relatively optimistic scenarios for digital advertising in Q1,” she said. “That suggests a cautiously optimistic outlook for Q2 — though growth will come in worse than Q1 as a whole, since Q1 impacts were limited to the end of the quarter.”

The ad slump is likely to have an impact as well on Facebook Inc., which reports its first-quarter results Wednesday. The Interactive Advertising Bureau said in late March that 70% of media buyers say they are adjusting or pausing their advertising spending plans as a result of the coronavirus.

Unlike the advertising side, the cloud business, which trails leaders Amazon Web Services Inc. and Microsoft Corp., appears to have benefited from the pandemic. The company reported in a blog post earlier this month it’s seeing 2 million new users daily accessing its Meet video service, and now is seeing 3 million new users a day. Pichai also said there are now more than 6 million paying G Suite customers.

Porat said the growth rate of Google Cloud Platform, its infrastructure-as-a-service offerings, was again “meaningfully higher than Google Cloud overall,” which includes G Suite. “We have good momentum with Google Cloud,” Pichai added, even though some deals are “taking a bit longer” to close.

“Stay-at-home orders may have helped accelerate companies’ move to the cloud, as employees need access to apps/data via the web as they work from home,” said Nucleus Research analyst Daniel Elman. “With this unlikely to end soon, more companies will move part or all business operations to a cloud environment, and Google is well-positioned to capitalize on this momentum.”

Pichai had already revealed plans two weeks ago to slow hiring and spending. Meantime, Google also said it’s cutting its own marketing budget for the second half of this year by 50%, according to a leaked internal memo sent to employees last week.

Beyond search and cloud, YouTube ad revenue rose 33%, to $4 billion, improving a bit from 31% growth in the fourth quarter, the first time it was broken out separately. In February, Alphabet disclosed that YouTube grossed $15.1 billion in ads in 2019.

Reflecting people buying apps and movies while sheltering at home, other businesses such as Google Play Store, hardware sales and YouTube subscriptions, rose 23%, to $4.44 billion — way up over the fourth quarter’s 10% growth. Pichai said on the earnings conference call that app downloads rose 30% in March over February.

Alphabet’s Other Bets segment, which includes businesses such as autonomous-car firm Waymo, health services firm Verily and Google Fiber, posted a $1.12 billion operating loss, up from $868 million a year ago, on revenue of only $135 million, down 21% from last year.

If the past quarter was hurt by the pandemic, however, the worst part is yet to come. RBC Capital analyst Mark Mahaney wrote in a note to clients that he expects Google core revenue in the second quarter to fall 20% from a year ago, recovering slightly to an 11% decline in the third quarter and a 5% gain in the fourth quarter.

Still, it’s likely that when the economy returns to something resembling normal, Google could lead the way to a recovery.

“Alphabet is better positioned than most to weather any economic turbulence – they have plenty of cash on hand, and they have the ability to dramatically cut costs if necessary,” said Nucleus Research’s Elman. “Growing antitrust concerns aside, it will be able to ride out any economic storm and come out larger on the other side due to the largely inelastic demand for search/YouTube/cloud services.”

Constellation Research Inc. analyst Holger Mueller agreed. “Overall Google is well set up for a pandemic world,” he said, largely thanks to its cloud push.

“Its cloud business is growing, and that is where enterprises will learn that they need to move their workloads,” he said. “Its G Suite business is doing well and stay-at-home orders have seen a boost in Google classroom usage. People having more time to spend online also means they will see more advertising. The question is, can Google keep the prices up?”

Photo: Robert Hof/SiliconANGLE