Google could challenge for $2 trillion market cap after earnings, stock-split news

If those gains hold into and through Wednesday’s session, they would put Alphabet in contention for a $2 trillion market cap, after ending Tuesday’s session worth more than $1.8 trillion, though that trajectory could be changed by a new share count affected by quarterly buybacks. Alphabet has yet to crest the $2 trillion valuation summit, unlike fellow Big Tech firms Apple Inc. AAPL, -0.10% and Microsoft Corp. MSFT, -0.71%, which both sit comfortably above it.

The gains came after Google executives made a move to reduce the gargantuan per-share price of its stock, announcing plans for a 20-for-1 stock split, and detailed a strong holiday season. The search-engine giant, dominant in global digital advertising, posted net income of $20.6 billion, or $30.69 a share, in its fiscal fourth quarter, compared with net income of $15.2 billion, or $22.30 a share, in the same quarter last year.

Revenue after removing traffic-acquisition costs was $61.9 billion, compared with $46.43 billion in the year-ago period. Overall revenue spiked 32% to $75.3 billion. Analysts surveyed by FactSet had estimated net income of $27.68 a share on ex-TAC revenue of $59.25 billion. Alphabet’s operating-profit margin improved to 29% in the quarter, vs. 28% in the same quarter a year ago.

“[The fourth quarter] 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 businesscontinuing to grow strongly,” Alphabet Chief Executive Sundar Pichai said in a statement announcing the results.

In a conference call following the earnings report, Alphabet Chief Financial Officer Ruth Porat said the quarter was driven by strong advertising spending, consumer online activity and “substantial” Google Cloud revenue growth.

Google’s total advertising rose to $61.2 billion from $46.2 billion a year ago. Search comprised $43.3 billion, vs. $31.9 billion a year ago. YouTube ad sales continued to outperform, jumping to $8.6 billion from $6.9 billion a year ago. YouTube recently hit 5 trillion all-time views, Pichai added in the conference call.

Google’s Cloud revenue soared 45% to $5.5 billion, though the division continues to trail rivals Amazon.com Inc.  AMZN, +1.08%  and Microsoft Corp. MSFT, -0.71% in cloud revenue. Among Google’s customers fueling the growth were Albertsons Cos. Inc. ACI, +0.04%, Box Inc. BOX, -0.04% and Spotify Technology SPOT, +3.75%.

Google’s stock is down 5% so far this year. The broader S&P 500 index  SPX, +0.69% has declined 4.6% in 2022.

“Google’s strong results offer further evidence that they are almost completely immune to supply-chain issues as well as recent privacy changes to Apple’s iOS,” Jesse Cohen, senior analyst at Investing.com, said in an email message. “In our view, Google remains one of the best-positioned companies in the tech space as the current operating environment has created a perfect backdrop for the digital-advertising giant to continue to thrive.”

Alphabet executives did not provide first-quarter guidance, nor say much else about the stock-split plans. That proposal must be approved by voters in the upcoming annual meeting; Alphabet’s class A shares convey a vote per share, class C shares do not provide any votes, and class B shares have supervoting capability and reside only with insiders such as co-founders Sergey Brin and Larry Page.

Near the end of a one-hour conference call with analysts late Tuesday, Pichai said Alphabet remained “open to sensible, updated regulations” where technology is beneficial to society, such as protecting children. But he said little of the tech legislation in Congress that seeks to address those issues. He also suggested small businesses could be unintentionally harmed by a handful of bills in the House and Senate designed to rein in Big Tech.

Pichai did not specify the bills by name, but one could be Open App Markets Act due to be marked up in the Senate this week. The bipartisan bill, co-sponsored by Sens. Richard Blumenthal, D-Conn., Marsha Blackburn, R-Tenn., and Amy Klobuchar, D-Minn., would block Google and Apple Inc. AAPL, -0.10% app stores from favoring their in-house apps in searches, requiring developers to use their payment systems, and preventing users from downloading apps from third-party stores.