Google owner defies tech sector gloom as ad spend surge boosts sales and profits

Google owner Alphabet defied the gloom surrounding the tech sector as its surging internet ad business helped it deliver better than expected results.

Shares rose nearly 9% in after-hours trading after Alphabet said revenues for the fourth quarter jumped by 32% year-on-year to $75.3bn and profits rose 36% to $20.6bn.

For the full year, sales climbed 41% to $257.6bn – a big acceleration after growth of just 13% in 2020 when companies slashed ads spend early in the pandemic – and profit rose 89% to $76bn.

The latest results were boosted by consumers using the search engine to find clothes and hobby items while retail, finance, entertainment and travel firms raised their marketing budgets.

Its shares bounce after the figures were published erased losses for the year to date.

Tech stocks have been under pressure in the early part of 2022 as investors worry about US interest rate rises, which will make big bets on future company earnings a less attractive option.

But Alphabet’s results seemed to underline that big e-commerce and streaming companies have managed to shrug off concerns such as supply chain strains and COVID-19 variants that have dogged much of the rest of the economy.

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Chief executive Sundar Pichai said: “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.”

Google generates more revenue from internet ads than any other company though the likes of Amazon and TikTok have been taking small pieces of its share.

The ad business – which also includes YouTube – account for four-fifths of Alphabet’s revenues.

Google also enjoyed sales growth in its cloud business, which serves clients such as online shopping software maker Shopify, thought it remained loss making.

Demand for the Google Pixel smartphone rose too, despite what were described as “extremely challenging” supply constraints.

Alphabet’s “other bets” division, which includes self-driving technology company Waymo, saw losses widen to $5.3bn.

The group’s total costs rose in 2021 by 27% to $178.9bn as it resumed its pre-pandemic pace of hiring and construction.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “The scale of its combined advertising businesses cannot be overstated.

“If you own a business in today’s world, chances are you will need to pay to get that marketing material in front of Google or YouTube’s users.

“The pandemic has handily accelerated the world’s reliance on digital advertising too – sitting through traditional TV advert breaks, or reading billboards suddenly feels completely archaic in the age of streaming and mobile phone addiction.”

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