Google parent Alphabet Inc. GOOG 1.61% posted another quarter of strong sales growth, capping a year when profit nearly doubled despite mounting regulatory pressure that threatens the search giant’s future.
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Alphabet on Tuesday reported fourth-quarter revenue of $75.33 billion, an increase of 32% from a year earlier when ad spending began to swell in anticipation that the economy would snap back in 2021 after the Covid-19 pandemic receded. Profit rose by a third, closing out a year when the company’s annual profit increased by almost $36 billion from 2020, more than the 2021 profits of Goldman Sachs Group Inc. and Visa Inc. combined.
The company also said that it would do a 20-for-1 split of its stock. The move comes on the heels of Apple Inc. and Tesla Inc. TSLA -0.58% splitting their own shares in 2020.
The quarterly sales gain was the lowest the company has recorded for a three-month period since late 2020 and marks a deceleration from the 41% increase reported in the July-to-September quarter. The moderating growth has divided investors, with some optimistic Google will extend its momentum over the coming year as Covid-19 wanes and travel returns, while others fear TikTok will dent YouTube’s video dominance and rising costs will cut into margins.
The divide has been apparent in the company’s share performance this year. After rising 65% last year, shares fell more than 10% in January amid a broad market selloff. Shares rose about 8% in after-hours trading on Tuesday.
The results were the first in a series to come from tech’s leading ad companies. Facebook FB 1.83% parent Meta Platforms Inc. reports on Wednesday and Snap Inc. SNAP 3.44% will post results on Thursday.
The biggest peril for Google comes from regulators in the U.S. and Europe who are filing lawsuits and proposing legislation to curtail its dominance. In the U.S., the company faces separate antitrust lawsuits against its ad-tech, search and app-store businesses, as well as state cases over claims it deceptively collected customers’ location information. It also faces proposed legislation that would limit tech companies’ ability to favor their own businesses, as well as a new bill being led by Sen. Mike Lee (R., Utah) that would force it to divest its ad-tech unit.
At best, the challenges will saddle the company with legal fees and discourage acquisitions that could draw regulators’ ire, according to analysts. At worst, the company could be forced to unload some business units to comply with judicial rulings or new laws.
Alphabet Chief Executive Sundar Pichai said that he has urged Congress to take its time on potential legislation, noting the importance of avoiding “unintended consequences.” He said the company has encouraged Congress to focus on areas where there is widespread agreement, such as protecting children online, and to avoid hurting “American competitiveness by disadvantaging, solely, U.S. companies.”
The 20-to-1 stock split will make Google’s shares more accessible to a broader array of investors by reducing the price tag of individual shares. In Alphabet’s case, it will convert each share valued at roughly $2,753 into 20 shares valued at $138.
Similar splits by Apple and Tesla were credited with helping extend a rally in share prices for those companies
Much of Google’s growth over the past year came from more e-commerce advertisers eager to reach customers whose product searches begin online. When the pandemic necessitated that local business expand into e-commerce, Google partnered with Shopify Inc. to simplify search listings and ad purchases for millions of merchants.
Total advertising sales rose by a third to $61.24 billion in the December quarter. YouTube was a major contributor with sales of $8.63 billion, bringing its total for the year to $28.85 billion, about $850 million less than Netflix Inc., the streaming-media subscription service.
As the internet’s largest video destination, YouTube now records 15 billion views daily, the company said. The platform has leaned into its position at the forefront of the creator economy, ditching efforts to create premium shows in favor of nurturing homegrown stars such as MrBeast. It plans to spend big over the coming year to maintain its pre-eminence in video by funding a TikTok alternative, YouTube Shorts, and adding live shopping.
“YouTube has created this new generation of entrepreneurs and celebrities who are attracting more and more viewers,” said Mike Frazier, president of Bedell Frazier Investment Counselling, which manages about $500 million and counts Google among its top-10 holdings. “It’s sticky and the advertisers covet that.”
Google has been pressed by investors to diversify beyond a digital-ad business that still accounts for more than 80% of total sales. The company has invested heavily in building out a cloud-computing division that can compete with established players Amazon.com Inc. and Microsoft Corp. , which account for 41% and 20% of the market, respectively.
In a bid to boost its 6% market share, Google has taken equity stakes in companies such as CME Group Inc. in exchange for long-term cloud contracts. The strategy helped Google’s cloud sales to rise 45% to $5.54 billion in the period. However, the costs contributed to the cloud business reporting a $1.45 billion loss for the period.
Write to Tripp Mickle at [email protected]
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