Google Smashed Top And Bottom-Line Wall Street Estimates

On Tuesday, Google's parent Alphabet Inc GOOGGOOGL literally crushed it with its last reported quarter. Despite Alphabet announcing that its cloud business remained unprofitable, Google's core advertising business overperformed estimates, leading its stock price to rise 8% .

What Do Fourth-Quarter Figures Say?

Alphabet's gross revenues rose 23% to $56.9 billion, while profit rose by an astonishing 45% year-over-year, to $22.30 an adjusted share. This surpasses analyst's expectations by 6.78%, since they projected gross revenues of $52.8 billion, with earnings per share $18.59, which is almost 20% less than achieved. Net revenue minus traffic acquisition costs (TAC) of $46.42 billion topped the estimates by 6.22%. TAC has risen 23% to $10.47 billion since Google relies on Apple Inc AAPL, partner sites, and third-party applications to generate higher mobile advertising revenues.

Furthermore, Alphabet disclosed Google Cloud's operating result for the first time, presenting that this part of the business made a $5.61 billion loss during 2020, and a $1.24 billion loss during Q4. Cloud business revenues were $3.83 billion, while analysts expected $3.8 billion. This presents a 47% year-over-year increase. Despite the loss, Google will continue to develop its cloud unit through disciplined investments to scale the business and improve profitability, as Google and Alphabet CEO Sundar Pichai stated. On the other hand, its rival Amazon.com, Inc. AMZN reported its cloud business earned an operating profit of $13.53 billion in 2020.

Advertising Business Is Shining Brightly

Advertising revenue for the fourth quarter amounted to $46.20 billion, which is approximately 22% higher, comparing to the same quarter of 2019 when the company generated $37.93 billion. Q4 2020 showed the best performance in the last 16 quarters for this internet titan. It implies the total recovery of the pandemic, unlike Q2 when the company recorded an 8% annualized decrease in ad revenues year-over-year for the first time in history.

YouTube ads soared 46% comparing to Q4 2019, with earnings of $4.72 billion. YouTube performance is particularly strong in direct-response ads, which practically did not exist threeyears ago, said Google's Chief Business Officer Philipp Schindler. Furthermore, YouTube reaches more 18–49-year-olds than all TV networks together, with more than 100 million people streaming YouTube from their TVs. Perspectives for growth, therefore, remain strong and robust.

Can Antitrust Lawsuits Affect Its Earnings?

Despite a successful year, there might be some trouble in paradise. Due to the pandemic, more people became more dependent than ever on the internet which helped Google thrive. Therefore, regulators became even more concerned that Google is using its search engine, mapping service, and Android operating system to gain an unfair advantage. Both the US Department of Justice and the US group of states led by Texas filed an antitrust lawsuit. Google said that these lawsuits were "deeply flawed" and this is certainly not the first time the tech giant is being grilled by regulators, but it remains to be seen whether these allegations can have a negative impact on Google's overall performance.

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