Alphabet profit rockets, fueled by Google ads

Ruben Fields
February 3, 2021

Alphabet announced its fourth-quarter earnings, beating Wall Street's profit and revenue expectations while giving its first look at just how well its cloud business is doing. For the full year 2020, Alphabet reported $41.2 billion on revenues of $182.5 billion. However, its shares ended up 1.6% as its quarterly adjusted profit topped estimates.

Google's fourth-quarter ad revenue totalled $46.2 billion, a 22 percent increase from the same time in the previous year.

Alphabet shares rose 7% in hours after trading.

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 grow quickly. Analysts, on average, expected US$44.2 billion, according to data compiled by Bloomberg. Although Google doesn't break out different cloud revenues, Credit Suisse analyst Stephen Ju wrote in a recent note to clients that Google's cloud services overall would be $3.64 billion in the fourth quarter, with Google Workspace apps accounting for $1.68 billion and Google Cloud Platform contributing $1.96 billion.

Those increases came after Google's ad revenue fell 8 percent during last year's April-June period that unfolded after most of the U.S. economy had shut down. However, sales and marketing expenses declined almost 8% for the fourth quarter from $5.73 billion to $5.31 billion for Q4 and declined 3% for the whole year.

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"We will continue to make disciplined investments" in cloud, he said.

"After a substantial pullback at the outset of the pandemic, brand spending began to recover in the third quarter", said Chief Business Officer Philip Schindler. The large earnings growth projection is the result of the comparison to the early days of the pandemic a year ago that caused huge onetime expenses and customers buying lower-margin necessities.

Advertising on YouTube during the past quarter rose 46% from the previous year to $6.9 billion.

Google is among the technology titans that have flourished as people hunkered down at home due to the pandemic rely on the internet and computing capabilities hosted at datacenters for work, school, shopping and socializing.

EMarketer Analyst Nicole Perrin said all three of Google's main lines of ad business outperformed the firm's forecast - including YouTube, which grew by nearly 46% in Q4 compared a year earlier. "With this change in consumer behavior likely to remain permanent, and Amazon's accelerating shipping and fulfillment speeds, the company's dominance as the go-to platform for e-commerce will remain unchallenged", he said.

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