Shares for the owner of Google and Android software have outperformed Apple over the last year. Buy, sell, or hold?
Fourth-quarter results to 31 December
- Revenue up 32% to $75.33 billion
- Earnings per share up 38% to $30.69
- Quarterly share buyback of $13.5 billion
Chief executive Sundar Pichai said:
“Our deep investment in AI technologies continues to drive extraordinary and helpful experiences for people and businesses, across our most important products. Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continuing to grow strongly.”
Google owner Alphabet (NASDAQ:GOOGL) reported forecast beating earnings as demand for its online adverting services remained strong through the ongoing pandemic.
Advertising revenues climbed by a third to $61.23 billion, driving earnings per share to $30.69, past Wall Street estimates for nearer to $27.30. The owner of YouTube also announced a 20 for 1 share split, potentially paving the way for its entry into the Dow Jones Industrial Average, the blue-chip index which requires companies to keep their share prices low.
Alphabet shares surged 9% in after-hours US trading, having risen by more than 40% over the last year. That compares to gain of just over 5% for the Nasdaq Composite tech index. Shares for rival mobile phone software maker Apple (NASDAQ:AAPL) are up around 30% in that time, while fellow corporate advertising favourite Meta Platforms (NASDAQ:FB), formerly Facebook, is up by just under 20%.
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Alphabet revenues for its Cloud data business rose 45% to $5.54 billion as operating losses reduced to $890 million from $1.24 billion a year ago. Alphabet is battling hard in this area with rivals Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).
YouTube advertising sales rose 25% to $8.63 billion. Chinese rival TikTok now competes heavily in this space. Sales for its Other Bets division, which includes the self-driving car business Waymo, fell by just under 8% to $196 million, with losses rising to $1.45 billion from $1.14 billion in Q4 2020.
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If approved by shareholders, the proposed 20 for 1 stock split is due to happen in July. California headquartered Alphabet returned $13.5 billion to shareholders via share buybacks during the quarter.
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 proved that Alphabet’s core advertising business is vulnerable to sudden economic confidence shocks. Quarter two 2020 marked the first time that advertising sales had fallen. Government concerns regarding monopolistic powers persist, while corporate taxes could rise as nations look to pay down elevated debt caused by the pandemic.
But Alphabet’s strength in the online advertising arena remains clear. It continues to be a firm advertising favourite for corporations globally. Unlike Meta and Snap (NYSE:SNAP), Alphabet’s ownership of the mobile phone Android operating system also leaves it less depend on metrics set by Apple such as advertising privacy. Shareholder returns remain in management’s focus and the proposed share split will make the shares more digestible for more investors. In all, and with the analyst consensus estimate of fair value remaining at over $3,300 per share pre the share split, long-term support for this tech icon looks likely to persist.
- Alphabet dominates the digital advertising market
- Executing share buybacks
- Cloud business trails both Microsoft and Amazon’s in sales
- Technology giants remain under global government scrutiny
The average rating of stock market analysts:
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