$Alphabet(GOOG)$ $Alphabet(GOOGL)$ is the third company in FAAMG to release its earnings result. As Apple and Microsoft before, it also handed over satisfactory answers to the market. In the recent volatile period when the market has doubts about rising interest rates and the valuation of technology stocks, big giants have once again proved that they can maintain bright performance regardless of the macro environment.
Alphabet's revenue in the fourth quarter was US $75.33 billion, up 32% year-on-year, significantly exceeding the consensus expectation of US $72.17 billion shown by Refinitiv, and its earnings per share (EPS) was US $30.69, up 37.6% year-on-year, significantly exceeding the market consensus of US $27.34 shown by Refinitiv. The company announced that its 20-for-1stock split program in July. Google A-share surged 9% in after-market trading hours, and the share price broke through the $3,000, only one step away from the all-time high of $3,019.33 in November last year. Strong performance and share split stimulus will push the share price to a new high.
Alphabet's revenue in the fourth quarter of 2021 was US $75.33 billion, up 32% year-on-year, which was better than 23% in the same period of 2020, but it was not as good as the second and third quarters of 2021 due to seasonal influence. In 2021, Google's total revenue was US $257.64 billion, up 41% year-on-year.
In Alphabet's financial report subdivision, it is divided into Google Services, Google Cloud, and Other Bets (other investments).
In the fourth quarter, Service income is 69.4 billion US dollars, Up 31.3% yoy, Higher than the market expectation of 66.64 billion US dollars, In service income, Revenue from advertising is as high as $61.24 billion, Among it, the search business brought 43.3 billion US dollars (accounting for more than half of the company's total revenue), with a year-on-year increase of 36%, which was 2.3 billion US dollars higher than the market expectation. The strong search business shows that Google has emerged from the haze of the pandemic, and the company is benefiting from the normalization of economic activities and the increase of advertiser expenditure.
YouTube's revenue surpassed Netflix and was challenged by TikTok
YouTube's advertising revenue was 8.63 billion US dollars, up 25.4% year-on-year, which was slightly lower than the market expectation of 8.87 billion US dollars, and was the only one that fell short of the market expectation in this financial report. In recent years, the video industry in North America has been challenged by short video TikTok, although YouTube has also launched a service called Shorts to fight against TikTok, which has little effect in the short term. Video platforms are likely to suffer more severe competition, as Google CFO predicted last quarter.
It is worth mentioning that this is only an advertising service from YouTube, and YouTube also has more than 50 million members' Premium subscription service income. By contrast, Netflix's fourth-quarter revenue of $7.71 billion was less than YouTube's.
Cloud service revenue reached a new high, but the growth rate slowed down
Cloud services, as the company's next growth engine, have always attracted much attention from the market. In the fourth quarter, Google's cloud service revenue was 5.54 billion US dollars, up 44.6% year-on-year, slightly higher than the expected 5.471 billion US dollars. Compared with the first three quarters of 2021, the growth rates were 46%, 54% and 45% respectively. Google Cloud includes infrastructure and data analysis platform (GCP, or Google Cloud Platform) for enterprise customers, and productivity and collaboration tools (Google Workspace). According to Microsoft's previous financial report, Azure and other cloud businesses increased by 46% year-on-year, while Google Cloud's growth rate was comparable to that of Microsoft, but the overall volume of Google Cloud was weaker than Azure.
Cloud computing posted an operating loss of $890 million in the quarter, down from a loss of $1.14 billion in the same period in 2020, but it expanded from an operating loss of $644 million in the third quarter. Google Cloud is still in the expansion stage. As a long-term growth opportunity and a large investment business of Alphabet, the market will pay attention to how Google Cloud grabs market share from AWS and Azure for a long time.
Innovative business shrinks, betting on future losses to enlarge
Other Bets is an innovative investment business that Google bets on the future, which is positioned in forward-looking product development and venture capital, including Google's self-driving Waymo, artificial intelligence DeepMind, intelligent medical Verily, venture capital funds Google Capital and Google Venture, etc.
Other Bets' revenue in the fourth quarter was 181 million US dollars, down 7.7% year-on-year, but compared with 182 million US dollars in the third quarter; Operating losses expanded from $1.14 billion in the fourth quarter of 2020 to $1.45 billion. However, in the face of Alphabet's strong cash and hematopoietic capacity, betting on a little loss in the future should be counted as capital expenditure, not oriented by short-term goals.
If you want to find flaws in Alphabet's overall strong financial report, It must be pointed out that the total cost and operating cost of the Company have increased significantly. In the fourth quarter, the traffic acquisition cost (TAC) paid to partners was US $13.43 billion, higher than the expected US $12.84 billion, an increase of over 28% year-on-year, and the growth rate was less than the growth rate of revenue in the same period. After deducting TAC which had an impact on profits, the revenue was nearly US $61.9 billion, higher than the expected US $59.3 billion, an increase of 33.4% year-on-year. However, the company has warned that there will be richer holiday marketing in the fourth quarter, plus the expenses related to cloud and service growth.
Stock split program may bring Google ride the wind
Finally, what really makes Google's share price rise by more than 9% after hours is stock split, which surprises the market.Alphabet today announced that the Board of Directors had approved and declared a 20-for-one stock split (the “Stock Split”) in the form of a one-time special stock dividend on each share of the Company’s Class A, Class B, and Class C stock. If approval is obtained, each of the Company’s stockholders of record at the close of business on July 1, 2022 (the “Record Date”), will receive, after the close of business on July 15, 2022, a dividend of 19 additional shares of the same class of stock for every share held by such stockholder as of the Record Date.
Assuming that the share price is $3,000,each share of GOOGL will convert into 20 in July 2022, the price per share after split is only $150, which allows more individual investors who love Google to own it!
Actually, the split doesn’t change the fundamentals of the business. Rather, it will lower the price of each share, a move that companies often make when their stock trades in the thousands of dollars. However,Apple ,Tesla and Nvidia witnessed substantial gains ahead of their most recent stock splits in the past 2 years as illustrated below.
On July 31, 2020$Apple(AAPL)$ announced that a 4-for-1 stock split will be held on August 31, 2020. And the closing price of $106 on July 31 and $126.5 on August 31. The closing price was $174.6 last trading day, with an increase of 65% and 28% respectively in one and a half years.
Comments