Google ads and cloud send Alphabet profit skyrocketing to $15.7 billion in Q4

Alphabet has quickly recovered from the business impact of Covid-19, according to its fourth-quarter earnings. Advertising revenue across Google and its streaming video service YouTube lifted 22% in Q4 to $46.2 billion, helping to push its parent company's revenue and income to meteoric heights.

Six months ago, the pandemic had caused sweeping cuts in ad spend, resulting in an 8% annualised ad revenue decline and Google’s first ever year-on-year revenue drop. In contrast, in the last quarter of 2020, YouTube ads' revenue jumped 46% year-on-year to $6.89 billion. This jump was likely caused by more people and a wider range of demographics using its services. “We now reach more 18- to 49-year-olds than all linear TV networks combined,” Philipp Schindler, Google’s chief business officer told analysts in a post results call. 

The strong performance from Google's ad business helped to lift Alphabet revenue by 23% in Q4 to $56.9 billion, compared to $46.07 billion in the corresponding period last year. Operating income was up 69%, from $9.26 billion to $15.65 billion in the same period. For the full year, Alphabet reported a 20.42% increase in net income from $34.23 billion to $41.22 billion, on revenue which was up 12.77% from $161.85 billion to $182.52 billion. 

As the company's businesses pivoted to focus on consumers working and playing from their homes, its cloud business saw a sharp 47% increase in revenue. But it remains far from profitable—this unit lost over $5.6 billion in the whole year ($1.24 billion in Q4), according to the earnings that Alphabet is reporting for the first time. Despite this growth, Google trails both Amazon and Microsoft in the cloud market. 

Alphabet's overall expenses rose by 12% to $41.2 billion in the fourth quarter of the financial year, while for the whole year this figure was up 10.7%. However, sales and marketing expenses declined nearly 8% for the fourth quarter from $5.73 billion to $5.31 billion for Q4 and declined 3% for the whole year. 

In terms of Alphabet's geographic performance, its APAC revenue grew by 32% in the fourth quarter to top $9.9 billion, compared to $7.48 billion for the same quarter last year. Elsewhere, US revenue grew 23%, Other Americas 14% and EMEA by 19%, the firm reported.