Alphabet revenue grows 23% but cloud business still losing billions, lagging competitors

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Google CEO Sundar Pichai

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Shares of Alphabet, the parent company of Google, rose nearly 8% in extended trading on Tuesday after the company reported fourth-quarter earnings that surpassed analysts’ expectations.

Here’s how the company did:

  • Earnings: $22.30 per share, adjusted, vs., $15.90 per share as expected by analysts, according to Refinitiv.
  • Revenue: $56.90 billion, vs. $53.13 billion as expected by analysts, according to Refinitiv.
  • Google Cloud: $3.83 billion, vs. $3.81 billion as expected by analysts, according to StreetAccount.
  • YouTube ads: $6.89 billion, vs. $6.11 billion as expected by analysts, according to StreetAccount.
  • Traffic acquisition costs (TAC): $10.47 billion, vs. $9.32 billion as expected by analysts, according to StreetAccount.

Alphabet’s revenue grew 23% on an annualized basis in the quarter, according to a statement. That’s stronger growth than last year’s Q4, which came in at 17%, and suggests that Google’s advertising business is recovering well after a big slowdown in Q2 of last year.

Advertising revenue for the fourth quarter came out to $46.20 billion, up from $37.93 billion in the same quarter last year. YouTube ads, which brought in $6.89 billion in Q4, showed a large jump from this time last year when it earned $4.72 billion.

The largest sector of ads were from the retail industry, executives said.

YouTube, which saw a huge jump in advertising sales, also saw a jump in viewers and longer time spent watching videos, executives said. “We now reach more 18-49 year olds than all linear TV networks combined,” said Philipp Schindler Google’s chief business officer. 

100 million people stream YouTube from their television sets, Schindler said.

The company also broke out operating income from its cloud business for the first time: the company lost $5.61 billion during the full year, and $1.24 billion during Q4, showing that the business is still in investment mode. By way of contrast, Amazon’s cloud business earned an operating profit of $13.53 billion last year and $3.56 billion last quarter.

“I’m very pleased with the progress here, and…we’ll continue making disciplined investments to scale the business and improve profitability,” said Google and Alphabet CEO Sundar Pichai in an earnings call.

Google Cloud’s revenue grew 47% year over year “with GCP growth remaining meaningfully above the growth rate for Cloud overall,” Pichai added. The company’s cloud business secured several billion-dollar deals in 2020, he said.

CFO Ruth Porat said the cloud unit will continue growing hires in sales and technical roles.

The company’s Other Bets segment, which includes life sciences unit Verily and self-driving unit Waymo, brought in $196 million in the fourth quarter and $657 million during the year. The company showed operating loss of $4.48 billion in 2020.

Google’s “Other Revenue” came in at $6.67 billion in Q4. That’s up from $5.26 billion Q4 2019.

Executives said the company closed its Fitbit acquisition and that its financial results will appear under its “Other” segment going forward.

This story is developing. Please check back for updates.

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