Alphabet Inc. on Tuesday beat fourth-quarter sales expectations as advertising customers unleashed budgets for the holidays, and the Google owner disclosed for the first time that its Cloud unit is losing US$5.6-billion a year.
Shares of Alphabet, up 9.5 per cent this year, rose 7 per cent after hours to US$2,053.75.
Google’s advertising business, including YouTube, accounted for 81 per cent of Alphabet’s US$56.898-billion in fourth-quarter sales, which rose 23 per cent compared with a year ago. Budget cuts by travel and entertainment advertisers in 2020 were nearly made up as the year went on by new spending from retail and other clients who were driven online by the COVID-19 pandemic.
Analysts tracked by Refinitiv had estimated quarterly revenue of US$53.129-billion, or growth of 15.31 per cent.
The Cloud disclosure marks a major milestone for Google, which generates more revenue from internet advertising than any company globally. Google for years has faced questions over whether it can spin the cash from its advertising business into a newly profitable venture.
Alphabet said Google Cloud posted a quarterly operating loss of US$1.24-billion. Google Cloud sales were US$3.831-billion, or US$13.059-billion for the full year, up 46 per cent from 2019.
The full-year Cloud operating loss widened 21 per cent to US$5.6-billion.
Over the past year, as Google chief executive Sundar Pichai added the title of Alphabet CEO, he has given investors greater clarity into the sprawling company’s performance. Before sharing Cloud costs and operating income, the company started disclosing Cloud and YouTube advertising sales.
Revenue from the Google Play mobile app store, YouTube subscriptions and consumer products is still lumped in to one category. Sales from small businesses Alphabet calls “other bets” including internet provider Google Fiber, artificial intelligence software maker DeepMind and health technology business Verily are separately grouped together.
Alphabet’s quarterly profit rose 43 per cent to US$15.2-billion, or US$22.30 a share, compared with the average estimate of US$10.895-billion, or US$15.95 a share.
Alphabet’s revenue, which for years had consistently increased by about 20 per cent annually, in 2020 increased by just 12.8 per cent. That marked its slowest growth since 8.5 per cent during the Great Recession in 2009.
The company remains undervalued compared with some rivals. Microsoft Corp. shares entering Tuesday traded at 10 times expected revenue over the next 12 months and Facebook Inc. seven times, while Alphabet shares were about six times.
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 Group Holding Ltd. enjoy a faster rebound from the pandemic. Last week, research company eMarketer estimated Google will capture 30 per cent of the market in 2021 while increasing sales by 18 per cent to US$117-billion.
Google is fighting antitrust investigations or charges across Australia, Asia, Europe and North America.
In addition, Google has threatened to pull its search engine from Australia if the country enforces new rules that would require the company to negotiate fair payments to news publishers to include their content in results.
Analysts also have expressed concern about potential revisions to content moderation laws under new U.S. President Joe Biden. Those laws currently favour companies such as Google.
Alphabet also is monitoring a nascent worker unionization effort and facing continuing criticism about its underperformance in hiring and retaining women and racial minorities.
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