Google owner Alphabet sees record growth as ad spend soars

Google parent company’s success comes despite legal setbacks, including a recent settlement announcement in a discrimination lawsuit

Google parent company Alphabet had a better-than-expected fourth quarter in 2020, the company announced Tuesday, bolstered by a rebound in ad spending during the holiday season.

Alphabet stocks were up as much as 7% in after hours trading following the company’s earnings report, which showed it reported record revenue for the second quarter in a row, beating analyst estimates.

Revenue for the video, search, and advertising giant rose to $56.9bn in the fourth quarter, from $46.08bn a year earlier. Analysts had expected revenue of $53.13bn, according to IBES data from Refinitiv.

Google’s advertising business, including YouTube, accounted for 81% of Alphabet’s fourth quarter sales, which rose 23% compared with a year ago.

Speaking in a call after earnings were announced, Philipp Schindler, Google’s chief business officer, said more than 100 million people now stream YouTube from their television sets.

“YouTube continues, in our view, to be amazing for brand advertisers,” he said. “Our brand business was hit hard in the early stages of the pandemic, but rebounded in Q3 and into Q4. It really helps advertisers reach a younger audience.”

“We now reach more 18 to 49 year olds than all linear TV networks combined,” he added.

Alphabet’s success comes despite a number of notable roadblocks. On Monday it was announced Google would pay $2.6m to more than 5,500 employees and past job applicants in a settlement over allegations it discriminated against female engineers and Asians in California and Washington state.

The settlement will barely put at dent in Google or its corporate parent, which generates more than $130bn in annual revenue, but marks the latest legal action in a difficult year for the company. Alphabet in 2020 was served three antitrust-related lawsuits and is facing a nascent unionization effort.

Alphabet’s growth had slowed earlier in 2020 amid the pandemic and regulatory uncertainty, but Tuesday’s earnings mark a strong recovery, said Haris Anwar, senior analyst at Investing.com.

“A stay-at-home holiday shopping season and a continuing ad rebound from the beginning of the pandemic has helped Google to post a strong fourth quarter,” Anwar said. “This robust turnaround in business should divert investors’ attention for the time being.”

Alphabet disclosed for the first time on Tuesday that its Cloud unit is losing $5.6bn a year. The Cloud disclosure marks a major milestone for the company, which generates more revenue from internet advertising than any company globally. The tech company has faced questions for years over whether it can spin the cash from its advertising business into a newly profitable venture. Cloud functions as Google’s attempt to compete with Amazon, whose AWS cloud services dominate the market, followed closely by Microsoft’s Azure.

“While Google has been the leader in search, it has lagged behind Amazon and Microsoft in terms of cloud computing,” said Christopher Rossbach, chief information officer of asset management company J Stern & Co. “These results show that it is growing rapidly and it is fast catching up to become a real third player in this important market.”

Alphabet said Google Cloud posted a quarterly operating loss of $1.24bn. Google Cloud sales were $3.83bn, or $13.06bn for the full year, up 46% from 2019.

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