Google parent Alphabet Inc on Tuesday reported record revenue for the second straight quarter despite the pandemic, driving shares up 6 per cent as it topped estimates for both advertising and Cloud sales as customers unleashed budgets for the holidays.
Cutbacks by travel and entertainment advertisers in 2020 were nearly made up as the year went on by new spending from retail clients and others that were driven online by COVID-19 lockdowns.
Google’s advertising business, including YouTube, accounted for 81 per cent of Alphabet’s $56.9 billion (Dh209 billion) in fourth-quarter sales, which rose 23 per cent compared with a year ago.
Google’s Cloud unit also benefited from the pandemic. Google Cloud sales were $3.83 billion, or $13.1 billion for the full year, up 46 per cent from 2019.
Analysts tracked by Refinitiv had estimated quarterly revenue of $53.1 billion and Cloud sales of $3.82 billion.
In a new disclosure, Alphabet said Google Cloud posted an operating loss of $1.24 billion in the fourth quarter and $5.6 billion for 2020, a 21 per cent wider loss than in 2019.
Google, which generates more revenue from internet advertising than any company globally, has long faced questions over whether it can spin the cash from its advertising business into a newly profitable venture. The new financial details suggest that goal still may be years away.
Alphabet’s quarterly profit rose 43 per cent to $15.2 billion, or $22.30 per share, compared with the average estimate of $10.895 billion, or $15.95 per share.
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.
Alphabet shares rose 6 per cent to $2,035.95 in after-hours trading on Tuesday. The stock has risen by 9.5 per cent so far this year.
Revenue growth slowing
Though Alphabet increased its cash hoard by $17 billion in 2020 to $137 billion, investors continue to scrutinize its growing expenses.
Alphabets 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 companys 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 per cent of sales.
Last year, the company slowed hiring and capital expenditures.
Alphabet’s revenue, which for years had consistently increased by about 20 per cent annually, in 2020 increased by just 12.8 per cent. That marked its slowest growth since 8.5 per cent during the Great Recession in 2009.
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 Amazon.com Inc becomes a bigger threat and China-focused vendors such as Alibaba enjoy a faster rebound from the pandemic. Last week, research company eMarketer estimated Google will capture 30 per cent of the market in 2021 while increasing sales by 18 per cent to $117 billion.
Google is fighting antitrust investigations or charges across Australia, Asia, Europe and North America.
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.
