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Google’s parent company Alphabet announced a stunning set of quarterly financials, with the search engine yet again generating record numbers. This has become a common theme, especially among the top tier growth stocks, which have all been pandemic winners. Alphabet shed 10% of its market value in January, in a broad sell-off driven by inflationary concerns, with the earnings surprise increasing the share price by more than 10% in after-hours trading. Investors are concerned, however, by mounting regulatory pressures on the tech industry as a whole. Numbers aside, Alphabet announced a 20-to-1 stock split, which will see its shares trade around the $150 level at current market pricing, all things equal. This follows fellow tech titans Apple and Tesla, which split their stock in 2020. Despite the buoyant market reaction to the stock split, it had no effect on the fundamentals of the business. – Justin Rowe-Roberts
"Alphabet delivered a Joe Burrow like robust quarter that will further boost the confidence of tech investors following stellar prints of Apple, Microsoft, and AMD. The tech bears now go back into hibernation mode with this jaw dropper Alphabet quarter"@DivesTech Wedbush
— Jonathan Ferro (@FerroTV) February 2, 2022
Google Parent Caps Blockbuster Year With Sales Gains
The company’s dominance in online search, video and internet ad sales made it one of last year’s leading beneficiaries of an upswing in digital advertising. Last year, small and large businesses alike flooded into the ad market in a bid to win customers who spent early parts of the pandemic sequestered in their homes.
Alphabet on Tuesday reported fourth-quarter revenue of $75.33bn, 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 $36bn from 2020, more than the 2021 profits of Goldman Sachs Group and Visa combined.
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 biggest peril for Google comes from regulators in the US 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 favour 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, US 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.
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