Google owner Alphabet posts record $57b revenue in final quarter

Google owner Alphabet announces record $57billion revenue in its fourth quarter as advertising recovers despite the pandemic

  • Google parent company Alphabet Inc on Tuesday announced record revenue in its fourth quarter
  • It posted $56.9 billion revenue, a 23% increase on last year
  • It came as advertising customers unleashed budgets for the holidays 
  • And as YouTube emerged as a major marketing magnet due to the increase in viewers during the pandemic
  • Yet it disclosed for the first time that its Cloud unit is losing $5.6billion a year
  • Shares in Alphabet rose 7% after hours and have increased 9.5% this year

Google parent company Alphabet Inc on Tuesday announced record revenue in its fourth quarter despite the ongoing coronavirus pandemic.

The company posted $56.9 billion revenue – up 23 percent from a year ago – after fourth-quarter sales far surpassed expectations. 

It came after advertising customers unleashed budgets for the holidays and Alphabet’s YouTube video service matured into a major marketing magnet. 

Budget cuts by travel and entertainment advertisers in 2020 were nearly made up as the year went on by new spending from retail and other clients who were driven online by the COVID-19 pandemic.

The Google owner, however, disclosed for the first time that its Cloud unit is losing $5.6billion a year. 

Google owner Alphabet Inc on Tuesday announced record revenue in its final quarter

Alphabet finished 2020 with a quarter that far exceeded expectations, as pictured

Shares of Alphabet, up 9.5 percent this year, rose 7 percent after hours to $2,053.75 following the release of the fourth quarter report. 

Analysts tracked by Refinitiv had estimated fourth quarterly revenue of $53.129 billion, or growth of 15.31 percent. 

Google’s advertising business, including YouTube, accounted for 81 percent of Alphabet’s $56.898 billion in fourth-quarter sales, which rose from $43.2 billion a year ago. 

The growth in the past quarter surpassed the 10 percent year-over-gain in Google´s ad revenue during the July-September period. 

Those increases came after Google’s ad revenue fell 8 percent during last year’s April-June period that unfolded after most of the U.S. economy had shut down. 

That marked the first time Google’s quarterly ad revenue had ever declined from the previous year since the company went public in 2004. 

When the pandemic first hit, advertisers clamped down on the spending, especially airlines, hotels, cruise lines and other businesses tied to travel. 

But advertising in those sectors are now recovering in anticipation people will be itching to hit the road later this year, although the travel and hospitality marketing still remains down by 30 percent to 40 percent from the pre-pandemic levels, according to a recent analysis by Canaccord Genuity.

While people haven’t been traveling as frequently or as far as they once did, they are watching more video streamed over the internet than ever. 

That trend has helped attract even more eyeballs to YouTube, a phenomenon that is spurring more advertising on the world’s most watched video site.

Advertising on YouTube during the past quarter rose 46 percent from the previous year to $6.9 billion.

YouTube emerged as a marketing magnet due to the increase in viewers during the pandemic

It marked a trend also seen in the final quarter reports of fellow internet giants Apple and Facebook which were released last week. 

Apple had a bumper year, with revenues of more than $100 billion in the three months to the end of December. 

Only a handful of companies, including Walmart , have previously reported $100 billion quarters, while Amazon is expected to break this barrier when it reports later this month.

But Apple’s profit margins are projected at about 23 per cent – roughly five times that of either retailer.

Facebook posted a profit of $11.2 billion on revenues of $28 billion in the final three months of 2020. 

The Californian company’s revenue rose 33 per cent to roughly $28 billion during the quarter. 

Alphabet’s quarterly profit also rose 43 percent to $15.2 billion, or $22.30 per share, compared with the average estimate of $10.895 billion, or $15.95 per share.

Though Alphabet increased its cash hoard by $17 billion in 2020 to $137 billion, investors continue to scrutinize its growing expenses.

Shares in Alphabet rose more than 7 percent after hours as the report was revealed

Shares of Alphabet are up 9.5 percent this year as it recovers from the pandemic

Alphabet’s costs to license programming for YouTube, operate data centers and stock consumer products have soared in recent years. 

Those other costs of revenue now account for about 27 cents for every $1 in sales, up from 23 cents four years ago.

The company’s traffic acquisition costs, which include revenue-sharing agreements with Apple Inc and other companies to distribute Google services, are growing more slowly than the other costs and have steadied at about 18 percent of sales.

Last year, the company slowed hiring and capital expenditures.

Alphabet’s revenue, which for years had consistently increased by about 20 percent annually, in 2020 increased by just 12.8 percent. That marked its slowest growth since 8.5 percent during the Great Recession in 2009.

The company said it expects a $2.1 billion boost to operating results in 2021 after a new assessment extended the useful life of its servers and networking gear by a year or more. 

The Cloud disclosure marks a major milestone for Google, which generates more revenue from internet advertising than any company globally. 

Google for years has faced questions over whether it can spin the cash from its advertising business into a newly profitable venture.

Alphabet said Google Cloud posted a quarterly operating loss of $1.24 billion. 

Google Cloud sales were $3.831 billion, or $13.059 billion for the full year, up 46 percent from 2019.

The full-year Cloud operating loss widened 21 percent to $5.6 billion.

Google Chief Executive and Alphabet CEO Sundar Pichai, pictured

Over the last year, as Google Chief Executive Sundar Pichai added the title of Alphabet CEO, he has given investors greater clarity into the sprawling company’s performance. 

Before sharing Cloud costs and operating income, the company started disclosing Cloud and YouTube advertising sales.

Revenue from the Google Play mobile app store, YouTube subscriptions and consumer products is still lumped in to one category. 

Sales from small businesses Alphabet calls ‘other bets’ including internet provider Google Fiber, artificial intelligence software maker DeepMind and health technology business Verily are separately grouped together.

The company remains undervalued compared with some rivals. 

Microsoft Corp shares entering Tuesday traded at 10 times expected revenue over the next 12 months and Facebook Inc seven times, while Alphabet shares were about six times.

Google’s lead over the global internet advertising market is shrinking as Inc becomes a bigger threat and China-focused vendors such as Alibaba enjoy a faster rebound from the pandemic.  

Things are expected to get even better for Google from here, assuming the COVID-19 vaccine eases the pandemic and enables the economy to reopen as the year progresses. 

Last week, research company eMarketer estimated Google will capture 30 percent of the market in 2021 while increasing sales by 18 percent to $117 billion. 

Canaccord Genuity is also projecting this year’s worldwide spending on digital ads will climb 15 percent to $389billion. 

That is more in line with the industry’s annual growth during the past decade, except last year when digital ad spending rose by just 8 percent because of the recession triggered by the pandemic. 

Google is well positioned to continue to capture the largest portion of the digital ad market, although it faces a potential challenge to its dominance from several lawsuits filed by the U.S. Justice Department and state attorneys general seeking a court order that could either break up the company or impose reforms undercutting its power. 

But the main antitrust case brought by the federal government isn’t scheduled to go to trial until September 2023, leaving Google plenty of time to try to grab an even bigger piece of the advertising pie. 

Google is also fighting antitrust investigations or charges across Australia, Asia, and Europe.

In addition, Google has threatened to pull its search engine from Australia if the country enforces new rules that would require the company to negotiate fair payments to news publishers to include their content in results.

Analysts also have expressed concern about potential revisions to content moderation laws under new U.S. President Joe Biden. 

Those laws currently favor companies such as Google.

Alphabet also is monitoring a nascent worker unionization effort and facing ongoing criticism about its underperformance in hiring and retaining women and racial minorities.

Source: Read Full Article