4Q Sales Up 23% Due to Surge in Search and YouTube Ad Revenue
Cloud Division Posts Losses... "Growth Potential Through Continued Investment"
[Asia Economy Reporter Kim Suhwan] Alphabet, Google's parent company, has surpassed annual sales of 200 trillion won for the first time in history. As the COVID-19 pandemic led people to stay at home, increasing the time spent on internet searches and YouTube, online advertising revenue surged, driving the strong performance.
According to Alphabet's earnings report released on the 2nd (local time), fourth-quarter revenue last year reached $56.9 billion (approximately 63 trillion won), a 23% increase compared to the same period last year (about 51 trillion won). This exceeded the market forecast of $53.1 billion (about 60 trillion won). Annual revenue totaled $182.5 billion (about 203 trillion won), surpassing 200 trillion won for the first time. Earnings per share also significantly exceeded the forecast of $15.9, recording $22.3.
Alphabet's "earnings surprise" was positively influenced by the advertising segment, which accounts for more than 80% of total revenue. In the fourth quarter, Alphabet's advertising revenue was confirmed at $46.2 billion (about 51 trillion won), surpassing the market forecast of $42.3 billion (about 47 trillion won).
Ruth Porat, Google's Chief Financial Officer (CFO), stated during the earnings announcement, "Advertising revenue from the search segment and YouTube drove these results."
As the COVID-19 pandemic extended the time people stayed at home, more people spent leisure time online, which is interpreted as leading to increased advertising revenue in the online sector.
However, the cloud segment showed somewhat lackluster results. Despite massive investments in the cloud sector, it still recorded losses rather than profits. In the fourth quarter, it posted a loss of $1.2 billion (about 1.3 trillion won), and the cumulative annual loss reached $5.6 billion (about 6.24 trillion won). Alphabet disclosed cloud segment results for the first time on this day.
Alphabet stated that it intends to continue investing in the cloud segment despite the losses.
Google CEO Sundar Pichai said, "We will continue to accelerate the cloud transition," adding, "Separating the cloud segment in this earnings report and disclosing it for the first time is part of this plan."
This is interpreted as a move to avoid falling behind in the cloud platform competition with other IT companies. As of 2019, Google's cloud service market share stood at 5%, ranking third behind Amazon (45%) and Microsoft (18%).
It is analyzed as a strategy for Google to break this duopoly and gain an advantage in the cloud service competition. According to The Wall Street Journal (WSJ), over the past five years, Alphabet has invested 14% of its total revenue in the cloud segment, exceeding Amazon's investment ratio of 10% relative to revenue.
Meanwhile, Alphabet's stock price surged more than 8% in after-hours trading following the earnings announcement.
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