- Alphabet (GOOG, GOOGL) wrapped another blockbuster quarter
- Though advertising remains its strong suit, cloud is catching up quickly
- The pull-back in GOOG stock offers an attractive entry point
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) never ceases to amaze with its never-ending growth story. Its recently released fourth-quarter results killed it, handily beating analyst estimates across both lines. Contrary to most of its peers, Apple’s (NASDAQ:AAPL) app tracking policy had little impact on its stupendous advertising business. GOOG stock has sold off late despite its rollicking performance, creating a highly attractive opening for new investors.
Alphabet stock boasts a market cap of roughly $1.9 trillion at the time of writing. Having grown at a staggering pace over the past several years, it’s tough to imagine how it can keep up the momentum. However, all indications point to a mammoth growth runway ahead with solid outlooks for its core and non-core businesses.
High inflation rates have weighed down growth stocks such as Alphabet recently. Consequently, GOOG stock trades at 6% lower than its 52-week high price of $3,042. Hence, the pullback offers an opportunity for new investors to open a position in the tech titan.
Business As Usual
Alphabet has made a habit of outperforming expectations. In its recently concluded fourth quarter, its revenues grew 32% from the prior year to $75.3 billion. The figure came in $3.5 billion above the consensus estimates. The top-line expansion during the quarter is a major improvement from the 23% growth it registered in 2020.
Revenues grew a spectacular 41% to $258 billion for the full year. Moreover, profits followed suit, with its operation income rising to $79 billion, a 31% increase from 2020. Additionally, operating margins across all its businesses were healthy 31%.
The robust growth witnessed during the fourth quarter was largely due to the upturn in digital advertising spending as responses to the pandemic shift. Total Google advertising during the quarter was up an incredible 33% from last year. The figure includes the company’s three advertising segments, which have grown by double-digits in the past few years.
Cloud Business Is Gathering Steam
Another bright spot for Alphabet during its fourth-quarter was its cloud business. It generated a lofty $5.5 billion in sales during the quarter. It accounts for just 7% of total revenues for the overall business but is Alphabet’s fastest-growing segment.
Moreover, Google recently acquired a couple of companies to add to the robustness of its cloud offerings. It acquired Siemplify and Mandiant to boost cybersecurity and intelligence for its cloud service. If it can continue to make pertinent investments, its foray into the cloud will soon begin to pay off.
Google currently has roughly 10% market share in the cloud business but can still ride the tailwinds in the sector for years to come. However, the business has been a money-losing proposition, burning millions each quarter. A lot has to do with the substantial capital expenditure requirements, which are needed to make it more competitive against its peers. Based on the segment’s growth runway, it won’t be long before it can become a massive profit source in the future.
Bottom Line on GOOG Stock
Alphabet has established itself as a juggernaut in online adverting after blowing past expectations with its earnings results. Apple’s privacy pivot has done little to impact company results. Google has an incredible competitive positioning across multiple profitable sectors, providing an excellent foundation to continue outperforming the market.
Additionally, its cloud business has been firing on all cylinders is its fastest-growing segment. If it can continue to improve its cloud service, it would open up a massive revenue stream that can speed past its advertising segment. Interest rates are likely to weigh down its stock market performance in the interim, but if it continues to perform, the stock may rise regardless.
Hence, it’s an ideal time to pick up GOOG stock as it struggles to get going along with the rest of the tech sector.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
