Shares of Alphabet rose nearly 9 percent late Tuesday, lifting its value back to close to $ 2tn, as an unexpectedly sharp rise in search advertising boosted Wall Street’s hopes that the Internet group’s momentum would continue as the pandemic eased.
The Google parent also announced a rare 20-to-1 stock split, only the second time it has split its shares since it went public in 2004, boosting stock market enthusiasm that greeted their recent earnings.
The split was a surprise and will help make the stock more affordable for retail investors, though it will have “no impact on the fundamentals of history,” said Youssef Squali, an analyst at Truist.
Alphabet ended the year with a 32 percent jump in fourth-quarter revenue to $ 75.3 billion, a slowdown from 41 percent growth in the previous three months, but still around $ 3 billion. more than analysts had expected.
Wall Street had been prepared for a sharp slowdown in growth in 2022, as Google faces tougher comparisons with the strong quarterly results it reported during 2021. Most analysts expect revenue growth for this year to fall to 17 percent.
But that recovery in revenue at the end of the year led to a hasty reconsideration, and in a call with analysts, Google executives offered unusually positive comments about the status of the company’s advertising business.
Sundar Pichai, CEO, said the final period of 2021 had been “a very strong quarter for ads”, while Ruth Porat, CFO, pointed to “broad-based advertising strength and strong consumer online activity”.
Google’s core search business took the spotlight and recorded a 36 percent increase in revenue from a year earlier, to $ 43.3 billion. Philipp Schindler, Chief Business Officer, said the performance had been helped by a number of artificial intelligence enhancements that had improved the underlying effectiveness of the company’s ads.
The Internet group has also been isolated from the impact that Apple’s iPhone privacy changes have had on other digital advertising companies, says Scott Kessler, an analyst at Third Bridge.
However, concerns that tougher privacy standards could ultimately erode the effectiveness of Google’s ads and harm its business remain.
Last week, the company bowed to privacy complaints, saying it would scrap a proposed system it had planned to introduce instead of advertising cookies, leaving some in the advertising industry worried that the targeting of its ads would be less effective.
If last week’s change erodes the company’s data advantage over competitors, “there is no guarantee that Google will continue to have giant market shares” in the future, said Arun Kumar, data and privacy manager at advertising group IPG.
For once, Google’s smaller YouTube and cloud businesses were overshadowed by their huge search advertising engine. YouTube’s growth fell to 25 percent from 43 percent in the third quarter, though Porat said it faced a difficult comparison with the year before, when brand advertising had increased.
Meanwhile, Google Cloud revenue grew by 45 percent, broadly in line with its much larger competitors Amazon and Microsoft.
The increase in revenue also left earnings in the most recent quarter well above forecasts, despite a jump in employment and heavier marketing and sales promotion costs around the holiday period. Earnings per share rose 38 percent to $ 30.60 compared to expectations of $ 27.32, while net income rose 36 percent to $ 20.6 billion.
The aftermarket rally on Tuesday added a recovery that has seen Google shares jump 18 percent since the start of last week. The recovery has put them within 1 percent of November’s record high, despite the sharp correction in tech stocks this year.