Alphabet shares climb as advertising and cloud sales soar amid pandemic

Google parent company Alphabet Inc on Tuesday said record revenue for the second consecutive quarter despite the pandemic, increasing shares by 6%, beating estimates for advertising and cloud sales as customers release budgets for vacations.

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Cuts to travel and entertainment advertisers in 2020 were nearly offset as the year progressed by new spending from retail customers and others that was driven online by COVID-19 lockdowns.

Google’s advertising business, including YouTube, accounted for 81% of Alphabet’s $ 56.9 billion in fourth-quarter sales, up 23% from a year ago.

Google’s cloud unit has also benefited from the pandemic. Google Cloud sales reached $ 3.83 billion, or $ 13.1 billion for the full year, up 46% from 2019.

Analysts tracked by Refinitiv had estimated quarterly revenue of $ 53.1 billion and cloud revenue of $ 3.82 billion.

In a new disclosure, Alphabet said Google Cloud recorded an operating loss of $ 1.24 billion in the fourth quarter and $ 5.6 billion for 2020, a loss 21% larger than in 2019.

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Google, which generates more revenue from internet advertising than any other business in the world, has long questioned whether it can turn the money from its advertising activities into a newly profitable business. New financial details suggest that target may still be years away.

Alphabet’s quarterly profit rose 43% to $ 15.2 billion, or $ 22.30 per share, from an average estimate of $ 10.895 billion, or $ 15.95 per share.

The company said it expects a $ 2.1 billion increase in operating results in 2021 after a new assessment extended the useful life of its servers and network equipment. a year or more.

Alphabet shares rose 6% to $ 2,035.95 after hours Tuesday. The stock has risen 9.5% so far this year.

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Although Alphabet has increased its cash flow from $ 17 billion in 2020 to $ 137 billion, investors continue to watch its growing spending.

Alphabet’s costs for licensing programming for YouTube, operating data centers and storing consumer products have skyrocketed in recent years. These other revenue costs are now about 27 cents for every dollar in sales, down 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 rising more slowly than other costs and have leveled off at around 18% of sales.

Last year, the company slowed hiring and capital spending.

Alphabet’s revenue, which for years had steadily increased by around 20% a year, only increased in 2020 by 12.8%. This marked its slowest growth since 8.5% during the Great Recession in 2009.

The company remains undervalued compared to some competitors. Shares of Microsoft Corp entering Tuesday were traded at 10 times expected earnings over the next 12 months and Facebook Inc was traded seven times, while shares of Alphabet were about six times.

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Google’s lead in the global internet advertising market is waning as Amazon.com Inc becomes a bigger threat, and China-focused vendors like Alibaba enjoy a faster rebound from the pandemic. Last week, research firm eMarketer estimated that Google would capture 30% of the market in 2021 while increasing sales by 18% to $ 117 billion.

Google conducts antitrust investigations or lawsuits in Australia, Asia, Europe and North America.

Additionally, Google has threatened to pull its search engine out of Australia if the country enforces new rules that would require the company to negotiate fair payments to news publishers for including their content in results.

Analysts have also expressed concern over possible revisions to content moderation laws under new US President Joe Biden. These laws currently favor companies such as Google.

Alphabet is also monitoring a nascent worker unionization effort and faces constant criticism for its underperformance in hiring and retaining women and racial minorities.