Stock in Alphabet, Google’s parent, is up more than 40% over the past year.
Sean Gallup/Getty Images
Alphabet crushed expectations and announced plans for a 20-for-one stock split after the market closed on Tuesday. Investors liked what they saw.
The Google parent reported fourth-quarter sales of $75.3 billion, up 32% year over year, with earnings of $30.69 a share.
Analysts polled by FactSet had forecast earnings per share $27.68 share on revenue of $72.3 billion.
“Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continuing to grow strongly,” CEO Sundar Pichai said in the company’s earnings release.
The company also announced a 20-for-one stock split, subject to shareholder approval. If approved, shareholders of record at the close of business on July 1 would receive 19 additional shares of the same class of stock for every share they own.
David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors, wrote that the split is the big takeaway, in his view.
“We all know that does not increase the fundamental value of a company,” he wrote. “But from what we’ve seen in the market with TSLA and NVDA, people like to chase stock splits, for some reason.”
Shares were up 7.1% to $2,949.00 in after-hours trading following the report.
Ahead of the report, a major question for investors was how many advertisers are switching to YouTube and Google as social-media firms continue to grapple with Apple’s 2021 advertising-tracking changes.
Last year, Apple (AAPL) began requiring applications on its operating system to ask users to opt in to advertisement tracking. Not many people made that choice, so social media apps, especially, have struggled to provide advertising clients with data on what actions app users they took after seeing ads. Measuring the effectiveness of ads suddenly became much harder, so some analysts speculated advertisers would head to Alphabet’s platforms.
Revenue in the Google Search and other segment was up 36% year over year to $43.3 billion, while revenue in the YouTube ads segment jumped 25% to $8.6 billion. Google Cloud revenue rose 44% year over year to $5.54 billion.
The positive stock reaction comes amid broader concerns about rising interest rates, which have slammed shares of growth-oriented tech companies by reducing the current discounted value of earnings expected years from now.
Ahead of the report, Wagner, the portfolio manager and analyst at Aptus Capital Advisors, which owns Alphabet stock in its exchange-traded funds, argued Alphabet can post 20% growth in earnings per share over the next five years.
“We see Alphabet as one of the best-positioned companies in the digital ad sector, with exposure to some of tech’s most important secular trends through mobile search, YouTube and enterprise cloud computing,” Wagner wrote. “We expect Cloud to become a more central component of the thesis over time (as the business scales and margins improve) and expect Google to continue capturing market growth from the ongoing shift towards digital advertising.”
Last week, Microsoft shares jumped after the company beat fourth-quarter expectations and raised its outlook for the current quarter. Alphabet looks like it keep the ball rolling with its own report.
Write to Connor Smith at connor.smith@barrons.com
