Alphabet CEO Sundar Pichai in Brussels, Belgium, January 20, 2020.
Geert Vanden Wijngaert | Bloomberg | Getty Images
Alphabet is close to wrapping up its best year from an investment perspective since 2009, and has turned out to be by far the top performing Big Tech stock of 2021.
At Thursday’s close at $ 2,938.33, Alphabet stock is up 68% this year. With only five trading days remaining in 2021, it’s virtually impossible for any of its bigger peers to catch up.
Microsoft is the closest, up 51%. Apple gained 33%, followed by Facebook (now Meta) by 23% and Amazon by 5%. You can even add Tesla, which has climbed 51% for the year. The Nasdaq 100, a basket of the largest non-financial companies on the Nasdaq, sits right in the middle, up 27%.
Alphabet, which derives the vast majority of its revenue from Google’s advertising business, has proven resilient during the Covid pandemic and resistant to recent inflationary concerns. Consumers have flocked to web and mobile search, maps and YouTube videos in greater numbers, and Google’s growing cloud infrastructure unit has resumed operations following the explosion of remote working.
In its October third quarter earnings report, Alphabet reported a 43% increase in ad revenue to $ 53.1 billion, and a similar increase in YouTube ad sales to $ 7.2 billion. Profits exceeded analysts’ estimates.
While other ad-based internet companies, such as Facebook and Snap, have been dragged down by Apple’s iOS privacy changes, Google has held up better, in part thanks to its control. on the Android operating system and its lack of dependence on Apple.
For the full year, revenue is expected to increase 39% to $ 254 billion, according to the average estimate of analysts in a Refinitiv survey. That would mark the fastest growth since 2007 and follows a year of expansion of just 13%, as Google’s parent company forecast a brief drop in revenue, for the first time, in the second quarter of 2020.
In early 2021, Google’s search activity began to grow ahead of the pandemic levels, driven by a rebound in advertising. Countries began to reopen and consumers searched for more products and travel options while spending more time on YouTube, which saw the largest growth of all social media apps among US users during the pandemic, according to the Pew Research Center.
“Alphabet’s recovery from the 2Q20-induced COVID-19 advertising crisis has been remarkable,” Argus analysts wrote in a report in late October. The company has a buy rating and wrote, “We are seeing continued momentum over the next few quarters as e-commerce and digital advertising flourished with the economic recovery.”
The last time Google delivered better returns for Wall Street was 12 years ago, when the stock more than doubled for the year. Google was a much smaller company then, and its market capitalization did not reach $ 1,000 billion until January 2020.
Less than two years after reaching that milestone, Alphabet has added nearly another trillion dollars, peaking at just under $ 2 trillion in mid-November. Its market cap stands at $ 1.95 trillion, as of the close of last week.
It’s not just advertising.
Google’s cloud division revenue soared 45% to $ 4.99 billion in the third quarter, while operating loss narrowed to $ 644 million from $ 1.21 billion. dollars a year earlier. Google Cloud Platform lags behind Amazon Web Services and Microsoft Azure in the cloud infrastructure market, but it benefits from an emerging multicloud trend as large enterprises distribute their workloads rather than rely on them. on a single supplier.
Alphabet has also seen significant returns on investment from its investment arms GV and CapitalG. Portfolio companies including UiPath, Duolingo, Freshworks and Toast went public this year. Alphabet posted investment gains of $ 188 million in the third quarter, up from $ 26 million a year earlier.
Freshworks CEO Girish Mathrubootham at Nasdaq
Looking ahead to 2022, analysts’ forecasts are more mixed and Alphabet may need to find new growth drivers to continue to outperform. Revenue growth is expected to slow to 17%, roughly where it was in 2019, before the pandemic.
Meanwhile, investors are still waiting for progress on Alphabet’s “Other Bets”. Its Waymo self-driving car business continues to lose a ton of money, although it has made progress in new cities in 2021. Alphabet continues to consolidate other projects that have failed to explode, announcing more recently that its folding Sidewalk Labs, its smart city efforts, in Google.
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