Alphabet Revenue Up 23% as Core Advertising Business Shows Strong Growth

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  • Google's parent company beat estimates on the top and bottom lines as advertising growth remained strong.
  • YouTube showed 46% advertising growth from last year, thanks in large part to direct-response ads.
  • Alphabet disclosed operating results from Google's cloud business for the first time, showing that the unit lost $5.61 billion during the full year, and $1.24 billion during Q4.

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 and showed a strong return to growth in its core advertising business.

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 shows 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 22% from $37.93 billion in the same quarter last year. That's a sharp turnaround from Q2, when the onset of the Covid pandemic spurred advertisers to pull back on spending, causing an 8% annualized drop in ad revenue and Google's first ever year-on-year revenue decline.

YouTube ads, which brought in $6.89 billion in Q4, showed a 46% jump from this time last year when it earned $4.72 billion. It 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, and more than 100 million people stream YouTube from their television sets.

YouTube is showing particularly strong growth in "direct-response" ads, which encourage consumers to take immediate action like download an app or buy something from an e-commerce site. That area of advertising remained more resilient last year, while brand campaign spend was more heavily impacted during the pandemic.

"Our direct-response business on YouTube was practically non-existent three years ago. Now, it's one of our largest and fastest-growing ad offerings on YouTube," said Schindler.

Alphabet 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 segment 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.

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