A month has gone by since the last earnings report for Alphabet (GOOGL). Shares have lost about 9.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Alphabet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Alphabet Earnings Top Q4 Estimates, Revenues Rise Y/Y
Alphabet’s fourth-quarter 2021 earnings of $30.69 per share surpassed the Zacks Consensus Estimate by 14.9%. The figure rose 37.6% year over year and 9.6% sequentially.
Revenues of $75.3 billion increased 32% year over year (33% at constant currency). The figure rose 15.7% from the prior quarter.
Net revenues, excluding total traffic acquisition costs or TAC (TAC is the portion of revenues shared with Google’s partners, and amounts paid to distribution partners and others, who direct traffic to the Google website), were $61.9 billion, which outpaced the consensus mark of $59.3 billion. The figure rose 33.3% and 15.4% from the year-ago quarter and the previous quarter, respectively.
TAC of $13.4 billion was up 28.3% year over year and 16.8% sequentially.
Top-line growth was driven by the solid momentum across the company’s search and cloud businesses. Further, rising advertiser spending and increasing online engagement of consumers contributed well. Also, strong sales of Pixel phones remained a positive.
The board of directors has approved a 20-for-one stock split, which is subject to shareholder approval, upon which each stockholder of record as of Jul 1, 2022, will receive a dividend of 19 additional shares on Jul 15, 2022. This remains a tailwind.
Apart from this, the company’s growing investments in AI and the expanding cloud services portfolio, which are expected to yield huge returns in the days ahead, remain major positives. This, in turn, is expected to continue instilling investors’ optimism in the stock.
Segments in Detail
The company reports revenues under Google Services, Google Cloud and Other Bets.
Google Services
Revenues from the Google services business increased 31.3% year over year to $69.4 billion, accounting for 92.1% of total revenues.
Under the services business, search revenues from Google-owned sites increased 35.7% year over year to $43.3 billion.
YouTube advertising revenues grew 25.4% year over year to $8.6 billion, while Network advertising revenues increased 25.6% to $9.3 billion.
Total Google advertising revenues grew 32.6% year over year to $61.2 billion and accounted for 81.3% of total revenues.
Google Other revenues, consisting of Google Play and YouTube non-advertising revenues, were $8.2 billion for the fourth quarter, up 22.3% year over year.
Google Cloud
Google Cloud revenues rose 44.6% year over year to $5.5 billion, accounting for 7.4% of the quarterly revenues.
Other Bets
Other Bets revenues were $181 million, down 7.6% year over year, accounting for 0.2% of total fourth-quarter revenues.
Regional Details
EMEA (30.7% of total revenues): The company generated $23.1 billion of revenues from the region, up 34% year over year.
APAC (16.9% of total revenues): The region generated $12.7 billion in revenues, up 28% from the year-ago quarter.
Other Americas (5.9% of total revenues): The region generated $4.4 billion in revenues, up 46% on a year-over-year basis.
United States (46.2% of total revenues): The company generated $34.8 billion of revenues from the region, which increased 30% from the prior-year quarter.
Operating Details
Costs and operating expenses were $53.4 billion, up 29.6% year over year. As a percentage of revenues, the figure contracted 160 bps from the year-ago quarter.
The operating margin was 29%, which expanded 100 basis points (bps) year over year. Segment-wise, Google Services’ operating margin of 34.5% expanded 100 bps from the prior-year quarter.
Google Cloud reported a loss of $890 million compared to a loss of $1.2 billion in the year-ago quarter.
Other Bets reported a loss of $1.4 billion compared to a loss of $1.1 billion in the prior-year quarter.
Balance Sheet
As of Dec 31, 2021, cash and cash equivalents, and marketable securities were $139.6 billion, down from $142 billion as of Sep 30, 2021.
Long-term debt was $14.8 billion at the end of the reported quarter compared with $14.3 billion at the end of the previous quarter.
The company generated $24.9 billion in cash from operations in the fourth quarter compared with $25.5 billion in the third quarter.
It spent $6.4 billion on capex, netting a free cash flow of $18.6 billion in the reported quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Alphabet has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Alphabet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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