Alphabet stock soars as strong ad and cloud sales spur big earnings beat

Alphabet Inc. easily beat forecasts for fourth-quarter profit and revenue thanks to strong advertising and cloud computing sales, sending its share up more than 7% in extended trading.

The Google LLC parent reported a fourth-quarter profit of $20.4 billion, or $30.69 a share, up 36% from a year ago. Revenue rose 32%, to $75.3 billion. Net revenue minus traffic acquisition costs came in at $61.9 billion as TAC rose 28%, to $13.43 billion.

Analysts surveyed by FactSet on average expected Alphabet to post a profit of $19.91 billion, or about $27.64 a share, on total revenue of $72.23 billion, or about $59.3 billion minus traffic acquisition costs.

Google Cloud remained a standout, as revenue for the quarter rose 45%, to $5.54 billion, about what analysts had expected. Operating loss for the segment also fell from $1.2 billion to $890 million.

CCS Insight analyst Martin Garner told SiliconANGLE that the cloud unit benefited from its “strong positioning on multicloud and the continued cloud investment across sectors that we saw in Microsoft’s earnings last week.”

Alphabet Chief Executive Sundar Pichai (pictured) said on an earnings conference call that the number of Google Cloud customers spending more than $1 million through its cloud marketplace grew six times. He also said Google released more than 2,000 new cloud products and feature releases in data analytics and AI, multicloud infrastructure, cybersecurity products and Google Workspace.

The cloud unit remains far behind market leaders Amazon Web Services Inc. and Microsoft Corp. Also, Google Cloud includes Workspace, its portfolio of online applications such as Gmail, Docs and spreadsheets, so the results aren’t quite as comparable to AWS in particular. Most of AWS’ revenue comes from core infrastructure as a service, such as computing and storage, though Microsoft’s cloud revenue also includes more than infrastructure services.

However, Chief Financial Officer Ruth Porat said revenue from Google Cloud Platform, its infrastructure services, continues to grow faster than Google Cloud overall. She said Google plans to continue heavy investment in cloud, which contributed significantly to an increase of 6,500 employees in the fourth quarter alone, but expects eventually for larger scale to reduce losses.

Overall, investors liked what they saw. After rising 1.7%, to $2,752.88 a share, in the regular trading session, Alphabet’s shares shot up about 7% in after-hours trading following the earnings report and before a scheduled conference call with analysts.

Last year, its shares went on a tear, shooting up 65% on the year. But they had fallen about 10% so far this year as investors worry that a return to travel, a key advertising market for Google, as the pandemic eases might be offset by higher costs, competition for YouTube from the likes of TikTok and ever-increasing regulatory scrutiny.

Investors also might be responding to the announcement of a 20-for-1 stock split, which doesn’t change the value of investors’ holdings but could open up the shares to more people by lowering the price of an individual share. Alphabet said it plans to split the Class A, Class B and Class C shares of the stock, though the change requires shareholder approval. Each shareholder as of July 1 will receive on July 15 19 additional shares for each share of the same class of stock they own.

As always, advertising dominates Alphabet’s revenue, including on Google search results and YouTube. Led by ads on search results pages, Google’s ad sales rose 33%, to $61.2 billion, in the quarter. YouTube in particular saw sales rise 25%, to $8.63 billion, though that growth was eclipsed by search ad revenue, which rose 36%, to $43.3 billion.

Analysts had forecast a 27% rise in overall ad sales, to $58.67 billion, including YouTube, which was expected to contribute $8.84 billion — so the latter came in just below expectations.

Google may have benefited generally from less exposure than some rivals such as Facebook owner Meta Platforms Inc. to Apple Inc.’s recent ad data tracking changes to its iOS apps that discouraged use of personal data. “Our industry checks suggest Search outpaced Social in the quarter, [with] Search perhaps benefiting from some shift of ad dollars related to iOS changes, even against the backdrop of mixed ecomm/retail spending,” J.P. Morgan analyst Doug Anmuth told clients in a recent note.

The company’s “other” segment, which includes Google Play Store revenue and hardware such as Pixel phones, rose 22%, to $8.16 billion. The segment doesn’t report operating results. In particular, Pichai said Pixel phones set an all-time sales record.

Meanwhile, Alphabet’s “other bets,” which include the self-driving car unit Waymo and the life sciences unit Verily, posted revenue of $181 million, down from $196 million a year ago, while operating losses in that segment rose to $1.45 billion from $1.14 billion a year ago.

More to come when the conference call starts at 2 p.m. PST.

Photo: Wikimedia Commons