Google parent Alphabet reports 52% surge in earnings on strong business

World's largest provider of search and video advertisements reported a net profit of $20.7bn

Alphabet’s full 2023 fiscal net profit increased 23 per cent to $73.8 billion. AFP

Google’s parent company Alphabet reported a 51.8 per cent jump in its fourth-quarter net profit, fuelled by an increase in Search, YouTube and advertising businesses.

The world's largest provider of search and video advertisements reported a net profit of almost $20.7 billion, the company said. It was 5 per cent up on a quarterly basis.

The California company reported a 13 per cent annual surge in last quarter’s revenue to more than $86.3 billion, beating analysts’ estimates of $85.3 billion.

This was the second straight quarter with a double-digit increase in revenue after four consecutive quarters of single-digit growth.

Alphabet’s full 2023 fiscal net profit increased 23 per cent to $73.8 billion, while revenue soared 9 per cent to $307.4 billion during the 12-month period.

Despite better-than-expected quarterly earnings, the company's stock dropped more than 4.42 per cent in after-hours trading to $146.28 a share.

The company’s stock closed 1.16 per cent lower at $153.05 a share on Tuesday, giving Alphabet a market valuation of $1.90 trillion.

“We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud,” chief executive Sundar Pichai said.

“Each of these is already benefiting from our AI [artificial intelligence] investments and innovation. As we enter the Gemini era, the best is yet to come."

Alphabet earned more than 48.6 per cent of its fourth-quarter revenue, or nearly $42 billion, from the US market.

In Europe, the Middle East and Africa, the company earned more than $25 billion, or almost 29 per cent of its total sales.

Alphabet’s operating income soared 27 per cent on an annual basis in the fourth quarter to about $23.7 billion. Its earnings for each share increased 56 per cent yearly to $1.64.

Google services business – which includes advertisements, Android, Chrome, hardware, Maps, Search, Google Play and YouTube – accounted for nearly 88.4 per cent of the company’s total sales.

It added more than $76.3 billion to overall revenue, nearly 12.4 per cent more than the fourth quarter of 2022.

Google’s advertising revenue from Search, YouTube and other businesses increased 11 per cent to more than $65.5 billion in the fourth quarter. It missed analyst estimates of $65.9 billion, according to StreetAccount.

"Alphabet's disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks, thus keeping some powder dry while waiting for more clues before opening up their wallets,” Thomas Monteiro, senior analyst at Investing.com, told The National.

“More than actual EPS, investors want to see improving margins and free cash flows … still, a healthy correction should make Google an interesting stock again, particularly due to the good numbers in the cloud business."

The total revenue from the cloud business grew an annual 25.6 per cent to nearly $9.2 billion in the December quarter, exceeding analysts’ expectation of $8.9 billion.

Google Cloud includes the company’s infrastructure and data analytics platforms, collaboration tools and other services for enterprise customers.

It generates revenue mainly from fees received for cloud platform services and workspace collaboration tools.

Alphabet’s cloud business, which has been bolstered by generative AI solutions during the past months, is facing a stiff competition from companies including Oracle, Amazon Web Services and Microsoft Azure.

Alphabet said its operating income in the cloud segment reached $864 million during the quarter. It improved from the fourth quarter of 2022, when the division’s loss was $186 million.

The company’s operating loss from other bets, or subsidiaries, reached about $863 million in the last quarter, from a loss of more than $1.2 billion in the same period for 2022.

Other bets are derived mainly through the sale of internet offerings, and licensing and research and development services.

This includes Alphabet’s X lab, self-driving unit Waymo and other non-Google companies.

Alphabet spent over $12.1 billion on research and development, nearly 14 per cent of its total sales in the fourth quarter. This was about 18 per cent more than the R&D expenditure for the same period in 2022.

YouTube added more than $9.2 billion to Alphabet’s revenue, increasing about 10.6 per cent annually.

Google’s total acquisition costs stood at $13.9 billion, up nearly 8.2 per cent on an annual basis, against analysts’ expectations of $14.1 billion.

TACs are payments that search companies make to affiliates and online companies for bringing traffic to their websites. It is a major expense for companies such as Google and Yahoo.

Alphabet’s total cash, cash equivalents and marketable securities reached more than $110.9 billion as of December, from $113.7 billion at the end of 2022.

Alphabet said that due to last year's workforce reductions, the company incurred severance and related charges amounting to $2.1 billion in 2023.

And Google's departure from certain offices led to charges of $1.2 billion for the quarter and $1.8 billion for the entire year.