ii view: Alphabet ad sales spike 22%

Having suffered in the early pandemic, corporate wallets look to have reopened. Buy, sell or hold?

Fourth-quarter results to 31 December

• Revenue up 23% to $56.9 billion
• Net income up 42.7% to $15.23 billion
• Earnings per share up 45.3% to $22.30

Chief executive Sundar Pichai said:

“Our strong results this quarter reflect the helpfulness of our products and services to people and businesses, as well as the accelerating transition to online services and the cloud. 

"Google succeeds when we help our customers and partners succeed, and we see significant opportunities to forge meaningful partnerships as businesses increasingly look to a digital future.”

ii round-up:

Tech giant and Google-owner Alphabet (NASDAQ:GOOGL) has reported a 22% jump in quarterly advertising revenues to $46.2 billion as customer spending confidence rebound under the pandemic.

The increase in its core advertising business contrasted with an 8% fall in the first real quarter of the pandemic to the end of June. Today's news sent its shares up by more than 5% in after-hours US stock market trading. 

Alphabet, which previously changed its name from Google, has seen its shares rally by around 30% over the last year, similar to fellow advertising corporate favourite Facebook (NASDAQ:FB). 

Total Alphabet revenues of $56.9 billion exceeded Wall Street forecasts for nearer to $53 billion. Sales for YouTube ads within its advertising business rose by 46% from the final quarter of 2019 to $6.89 billion. 

YouTube videos compete with the likes of Netflix (NASDAQ:NFLX) and have been watched by consumers as they work, school and entertain themselves from home during the pandemic. 

Away from advertising, revenues for its cloud computing business, which competes against the likes of Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), jumped by more than 40% to $3.83 billion. 

Losses for cloud, which management disclosed for the first time, came in at $1.24 billion, hindered for now by ongoing investment costs. Its services encompass data analytics platforms, collaboration tools, and other services for enterprise customers.

Its other Bets division, which includes its self-driving business Waymo, recorded revenues of $196 million in the period, up from $172 million in late 2019. Waymo competitors take in the likes of electric car and software developer Tesla (NASDAQ:TSLA). 

ii view:

Alphabet operates across the three divisions of Google services, cloud and other bets. Services also includes chrome, hardware, Google maps, Google play and search. The division generates revenues primarily from advertising. Subscription fees for YouTube Premium and YouTube TV also feed into the mix. 

For investors, 2020 and the pandemic have proved that its core advertising business is vulnerable to sudden economic confidence shocks. Quarter two 2020 marked the first period in its history of retreating advertising sales. Government concerns for monopolistic powers also need to be considered.

However, these latest results do appear to evidence an established corporate importance for online advertising, given the clear rebound seen as corporate wallets have reopened. Also, an estimated one-year price/earnings (PE) ratio just below the three-year average potentially suggests room for further recovery. In all, and while the debate over tech or value stocks rages, investors appear unlikely to desert this tech icon anytime soon. 

Positives

• Alphabet and Facebook dominate the digital advertising market
• Total cash and cash equivalents held of $26.5 billion

Negatives

• Cloud business trails Amazon’s in sales
• Technology giants suffering increased global government scrutiny

The average rating of stock market analysts:

Strong buy