Microsoft’s Search Revenue Declined And Is Going To Continue Further

Microsoft reported continued slowdown in search ad revenue, which could spell bad news for Alphabet, which reports its Q3 earnings on Thursday.

Microsoft saw a 10% year-over-year drop in search advertising and said it expects a mid-to-high single-digit decrease next quarter.

Alphabet and Microsoft have historically shown correlating trends in search revenue.

The Projections

Microsoft is forecasting a continued slowdown in its search ad revenue, which could spell bad news for Google parent Alphabet’s earnings report on Thursday. 

Microsoft’s latest results beat across the board, but the company saw a 10% year-over-year drop in search advertising revenue and reported continued decrease for its guidance for the next quarter, according to its fiscal first-quarter earnings statement released Tuesday.

For the December quarter, in search excluding traffic acquisition cost “we expect revenue to decline in the mid-to-high single-digit range,” Microsoft CFO Amy Hood said during an investor call Tuesday. That suggests a decline of 7% to 9%.

Google’s search engine is much more widely used than Microsoft’s Bing, but the companies have shown similar trends in search advertising revenues.

Previous Quarter Reports

Last quarter, Microsoft’s search advertising revenue, excluding traffic acquisition costs, decreased 18% as customers spent less on ads.

That was a precursor to Alphabet reporting its first year-over-year quarterly revenue decline ever.

Specifically, Google’s Q2 revenue from search and other on-site ads (minus YouTube) dropped about 10% from a year earlier, from $23.64 billion to $21.32 billion. (Revenue from YouTube advertisements, which it began breaking out separately this year, grew from $3.6 billion to $3.81 billion.)

Before that, Microsoft’s search advertising revenue excluding traffic acquisition costs increased 1% in the quarter that ended March 31, which overlapped with the beginning of the pandemic.

That quarter, Alphabet reported a 9% increase in revenue from search and other (minus YouTube) revenue, which jumped from $22.54 billion in 2019 to $24.50 billion in 2020.