Google parent Alphabet Inc (NASDAQ:GOOG). reported forecast-beating earnings and revenue for the fourth quarter of 2021, driven by growth in advertising revenue and Google Cloud, and announced a 20-for-1 stock split that will take effect in July.
The US tech giant saw revenue of US$75.33bn in the three months to 31 December 2021, a rise of 32% compared with the same period in 2020, and above market forecasts of US$72.17bn.
Earnings per share were US$30.69, up from US$22.30 last year, beating expectations of US$27.34.
Google’s advertising revenue came in at US$61.24 billion for the quarter, up 33% from the same period a year earlier.
YouTube advertising revenue totalled US$8.63bn in the final quarter, which fell short of market forecasts for US$8.87bn.
Google Cloud revenue grew by 45% to US$5.54bn, which exceeded expectations of US$5.47bn. Operating losses in cloud narrowed to US$890mln in the fourth quarter from US$1.14bn in the same period a year ago, but widened from the third quarter, when losses amounted to US$644mln.
Retail was the largest contributor to advertising growth as consumers used Google to search for items sold online, while retail, finance, entertainment and travel advertisers raised marketing budgets, Google's chief business officer, Philipp Schindler, said on an earnings call.
Ruth Porat, chief financial officer of Alphabet and Google, said: “Our fourth quarter revenues of $75bn, up 32% year over year, reflected broad-based strength in advertiser spend and strong consumer online activity, as well as substantial ongoing revenue growth from Google Cloud.
"Our investments have helped us drive this growth by delivering the services that people, our partners and businesses need, and we continue to invest in long-term opportunities.”
Sundar Pichai, CEO of Alphabet and Google, said: “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.”
Under the planned 20-for-one stock split, investors as of July 1 will receive 19 additional shares for each one held.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said any business in today's world will have to pay to get its marketing material in front of Google or YouTube’s users.
"The pandemic has handily accelerated the world’s reliance on digital advertising too – sitting through traditional TV advert breaks, or reading billboards suddenly feels completely archaic in the age of streaming and mobile phone addiction," she said.
"The profitability of the core advertising operation has also allowed Alphabet to chivvy up an even more exciting product. Google Cloud has the potential to do what Amazon Web Services has done for the retail giant – revolutionise the earnings engine driver," Lund-Yates added.
"From a profit perspective, Google Cloud has a little way to go before it can pad out the bottom line, although losses are narrowing. And once the costs of the new mammoth infrastructure are covered, operating leverage dynamics means earnings will jump, pretty much instantly."
Alphabet had cash of US$139.6bn at end-2021.
Its shares rose over 10% in pre-market trade.
Lund-Yates said that in addition to the results, the market is also reacting to the stock spilt, "which is not only an indication of confidence from management, but will mark a more affordable entry point for investors".
"Prior to results, Alphabet shares were flat for the last six months, meaning it’s managed to avoid the worst of the tech sell off but not fully avoided subdued sentiment," she said.
Although continued swings are expected in the tech sector, "a company with well over US$100bn of net cash swashing around the balance sheet, while not protected from taking on some muddy water, is more than capable of staying afloat as macro tides change”, she said.