Alphabet Inc’s (Google’s) quarterly sales for its advertising and cloud businesses exceeded expectations to hit record levels, helped by the pandemic driving retail and clients online.

Figures

Google’s advertising business, which includes YouTube, made up 81 per cent of Alphabet’s record $56.9 billion in quarterly sales (fourth quarter).  This represented a massive 23 per cent rise on one year ago. Also, Alphabet’s cloud sales were $3.83 billion, or $13.1 billion for the full year. This represents a 46 per cent rise from 2019 figures. These increased sales have meant a $17 billion increase in Alphabet’s cash in 2020 (up to $137 billion), and news of the big sales figures prompted an 8 per cent jump in Alphabet’s share price.

Why?

Several analysts have noted that the lockdown over the Christmas-period was one of the reasons why many advertisers, including many of those who had been hard hit by the pandemic, returned to Google, and put more of their budgets into online advertising with Google as a way to reach their audience who had pretty much retreated online.

Also, with the news that vaccines had been developed and with some hope in sight, sectors such as travel started to advertise again to get future bookings, thereby fuelling Google’s ad sales even more.

Another interesting reason for Google’s fourth-quarter ad sales growth, particularly in the U.S., where the traditional TV audience has become particularly fragmented and more than 100m people now watch YouTube on their TV screens, was a move by advertisers to reach those people by consumer brands.

Cloud Division

Although Google’s results showed that its cloud division as a whole made an operating loss of $1.24 billion, there appears to be a feeling that this is a longer-term initiative for Google and there is a plus side in the form of a backlog of cloud business at the end of the year of $30bn which is still more than three times the amount there was at the end of last year.

Costs and Threats

Alphabet has had some high costs in recent years such as its licensing programming for YouTube, operating its data centres and stocking consumer products plus Alphabet also now faces the threat of a generally shrinking lead over the global internet advertising market as it faces competition from the likes of Amazon.com and Alibaba.

What Does This Mean For Your Business?

These figures relate to the last quarter of last year and appear to reflect how, with lockdown restrictions in place over Christmas, advertisers decided to spend more to advertise online as many consumers simply turned to online shopping.  Also, the figures reflect (particularly in the US) companies trying to reach a fragmented audience by spending more on YouTube advertising, and show how brands such as travel brands started advertising online again knowing that vaccines could mean that the next year’s holidays would be back on.  In general, the big spend on online advertising with Google reflects how at the end of last year consumers were still relying heavily online for all parts of their buying processes and companies needed (as they still do to a large extent) to advertise more online in order to reach them.