Abstract: In the fourth quarter of last year, Google's parent company revenue rose by 32%, EPS increased by nearly 38%, operating profit increased by nearly 40%, cloud revenue increased by nearly 45% and operating loss narrowed by 30% year-on-year, all of which exceeded expectations, but YouTube advertising revenue was slightly inferior, innovation business revenue narrowed and operating losses expanded by nearly 30%. The company intends to split its shares 20-1 in the form of a one-time special dividend in mid-July, rising more than 7% after hours, forcing the stock price to near a new high of $3,000.
On Tuesday, February 1, after the U.S. stock market, digital advertising and search giant Alphabet, google parent company, released its fourth quarter financial results for fiscal 2021.
Google's total revenue, earnings per share EPS, and revenue from its cloud business as an engine of future growth were all better than expected, and the company also announced a 20-1 split, effective July, and the after-hours gain quickly expanded to more than 7%, with the stock price near an all-time high of $3,000.
Google Class A shares (GOOGL) closed up 1.7 percent on Tuesday at nearly $2,753, up three days in a row, recovering most of the losses since January 14, still down more than 9 percent from the all-time high of $3,019.33 set in November last year, and down 5 percent this year.
Its stock price has outperformed the broader market over the past year, with a total return of 44 percent, well above the S&P 500's 17 percent, while Alphabet's biggest cloud rival, Amazon, fell nearly 8 percent, Microsoft rose 32 percent, and Facebook, the biggest competitor in the online advertising business, rose 20 percent over the same period. Alphabet is up 65 percent in 2021, outperforming other tech giants in FAAMNG and three times the nasdaq's gains.
Some analysts said that the stock price changes of giants such as Google, Facebook and Amazon, which announced earnings reports this week, may determine whether the entire market is rising or falling, and investors are waiting to see whether the NASDAQ, which is dominated by technology stocks, can completely break away from the technical level and pull back.
The four quarterly reports exceeded expectations across the board: revenue surged 32%, EPS increased by nearly 38%, operating profit increased by nearly 40%, and net profit reached a new high
According to the analysis, Google's financial report shows that the company has withstood the impact of the epidemic.
According to the earnings report, Google's parent company's revenue in the fourth quarter of last year was $75.33 billion, higher than analysts' expectations of $71.89 billion, an increase of 32% year-on-year, higher than the year-on-year increase of 23% in the fourth quarter of 2020, and weaker than the year-on-year growth rates of 61.6% and 41% in the second and third quarters of last year.
Eps earnings per share for the quarter were $30.69, higher than expected at $27.35, up 37.6 percent year-over-year and similarly weaker than the year-over-year increases of 166 percent, 168 percent and 70.7 percent, respectively, in the first three quarters of last year.
The cost of traffic acquisition (TAC) paid to partners in the fourth quarter was $13.43 billion, higher than the expected $12.84 billion, an increase of more than 28% year-on-year, and the increase was smaller than the growth rate of revenue in the same period, which is a positive sign that earnings growth can be maintained. Revenue after deducting TAC, which had an impact on profits, was nearly $61.9 billion, higher than expected at $59.3 billion, up 33.4% year-over-year.
Operating profit for the quarter was close to $21.9 billion, up nearly 40% year-on-year, essentially three times the level before the pandemic. Operating margin was 29 percent, down from 32 percent in the previous quarter to 28 percent in the same period in 2020, with a record quarterly net profit of $20.6 billion.
In addition, the company spent $6.38 billion on capital expenditures in the fourth quarter of last year, lower than the expected $7.42 billion.
For the full year of 2021, Google's total revenue was $257.64 billion, up 41% year-on-year, and earnings per share were $112.20, nearly doubling year-on-year. Operating profit was $78,714 million, up 91% year-over-year, and operating margin was 31%, up from 23% in 2020.
Cloud revenue rose more than 44% year-on-year and operating losses narrowed by 30% year-on-year, but YouTube advertising revenue was weaker than expected
By business, the cloud business, which the market cares most about and is regarded as Google's next growth engine, had revenue of $5.54 billion in the fourth quarter, higher than the expected $5.471 billion, an increase of 44.6% year-on-year, and the growth rate in the first three quarters of 2021 was 46%, 54% and 45%, respectively.
Cloud operating loss of $890 million for the quarter was higher than analysts' expectations of $821 million and well above the previous quarter's operating loss of $644 million, but narrowed by nearly 30 percent, or 28 percent, from an operating loss of $1.243 billion in the fourth quarter of 2020.
Google Cloud includes an infrastructure and data analytics platform (GCP) for enterprise customers, as well as productivity and collaboration tools (Google Workspace)
In addition, in the latest earnings format, Google services include the core advertising and search business, Android and Chrome browsers, hardware, Google Maps, Google Pay, Play App Store and YouTube video platform.
Services revenue for the fourth quarter was $69.4 billion, up 31.3% year-over-year from an expected $66.64 billion, and services operating profit of $25.99 billion was also higher than the expected $24.26 billion.
Google's advertising revenue for the quarter was $61.24 billion, up 32.6 percent from $46.2 billion in the year-ago quarter; among them, YouTube's video platform's advertising revenue was $8.63 billion, up 25.4 percent year-on-year, but weaker than market expectations of $8.87 billion.
Alphabet and Google CEO Sundar Pichai said the company continued to benefit from deep investment in AI technology, with continued strong growth in advertising and cloud businesses in the fourth quarter, and Pixel smartphones still hit new quarterly sales despite supply constraints.
Alphabet and Google CHIEF FINANCIAL OFFICER Ruth Porat said revenue rose more than 30 percent in the fourth quarter, reflecting the breadth of advertiser spending and strong consumer online activity, as well as the strong growth in Google's cloud revenue, and the company will continue to invest in long-term opportunities.
Revenue from innovative businesses shrank, operating losses widened by nearly 30%, and shares were split 20-1 in the form of a one-time special dividend
The third part of the earnings report, "Other Bets", was once Google's technology innovation division, positioning forward-looking product development and venture capital, including self-driving startup Waymo, artificial intelligence DeepMind, smart healthcare Verily, venture capital funds Google Capital and Google Venture.
Revenue in the fourth quarter of last year was $181 million, down 7.7% year-on-year, but basically the same as the third quarter of last year; operating losses widened from $1.14 billion in the fourth quarter of 2020 to $1.45 billion, which equates to a loss of nearly 30% wider than the same period last year.
The company also said its board had approved a 20-to-1 split of Alphabet's Class A, B and C shares in the form of a one-time special dividend. Subject to the approval of the General Meeting of Shareholders, shareholders of record registered before 1 July will receive an additional 19 shares per share after hours on 15 July.
Wall Street has high hopes for Google Ads and cloud growth, but ads may be weighed down by supply challenges for marketers
According to data compiled by Bloomberg, analysts continue to raise Alphabet's target price, and the gap with its actual stock price once hit the largest since the outbreak of the epidemic in Europe and the United States in March 2020, and the average wall Street target price represents a 25% increase in the stock price.
Only one analyst before the earnings report recommended "buying". Alphabt has risen 8 percent since Microsoft released a better-than-expected earnings report, surpassing the Nasdaq 100, the largest two-day gain in more than a year, and becoming a favorite among investors in the large-cap after Amazon. This was largely due to the company's price-to-earnings ratio falling to 22 times its profit expectations for next year, a 16 percent discount from the NASDAQ's 100, which is seen as providing growth prospects at reasonable prices.
Investors and analysts will be keeping a close eye on the performance of the advertising and emerging cloud businesses, which are Google's main revenue drivers. Google Cloud continued to record operating losses, but the company continued to invest heavily in trying to steal market share from Amazon's AWS and Microsoft Azure cloud services.
Major investment banks such as JPMorgan Chase said apple iOS privacy changes may not have a significant impact on its advertiser base, mainly because Google's revenue-generating business modules are more diverse and it has important first-hand data through search and video platforms. Google Search may also benefit from the trend of social media advertising shifting "positions" due to changes in iOS privacy settings.
At the same time, the cloud remains a long-term growth opportunity and a significant investment area for Alphabet. Dan Ives, an analyst at investment bank Wedbush, said that Microsoft's better-than-expected earnings report shows that the demand for cloud software continues to grow, which is also a good sign for other technology giants, and Wall Street will pay special attention to the details of Google and Amazon's overall cloud computing needs in 2022.
However, The Motley Fool, a US stock research and investment website, warned that the positive earnings report does not mean that Google's stock price can continue to rise, because its advertising business may be dragged down by problems related to supply challenges. Alphabet Search and YouTube video-critical business rely on businesses' marketing spending, negative factors such as high inflation and supply chain disruptions lead to higher costs, and once advertisers withdraw marketing spend, Google's revenue will decrease.
In the fourth quarter of last year, Google announced an expansion of real estate investments and expanded the road test of the self-driving car Waymo to other major cities such as New York and San Francisco. YouTube's video platform has been integrating more e-commerce features in recent quarters to take on TikTok. Google also announced in the fourth quarter of last year that it was increasing hiring, and investors will pay special attention to its cost issues.