In the early morning of February 2, Beijing time, Google’s parent company, alphabet, released the results for the fourth quarter of 2021.
1. First look at the overall situation:
(1) the total revenue reached US $75.3 billion, with a year-on-year growth rate of 32%, exceeding the market expectation of 71.8 billion (capital IQ). Almost all the main businesses have shown strong growth resilience, showing the style of big brother.
(2) the operating profit was 21.9 billion, with a year-on-year increase of 40%. Although the cost increased significantly and the profit margin fell by 3 percentage points month on month, it basically met the market expectation.
Finally, the net profit reached US $20.6 billion. Even excluding the impact of the change in the depreciation life of network equipment (347 million), the net profit growth rate was as high as 33%. EPS in the third quarter was $30.69, much higher than the market expected $27.28 (capital IQ).
(3) the management announced that it would implement the share split plan of “1 split 20”. The registration date is July 1, 2022, and the share split distribution will be completed on July 15, 2022. After the splitting of nearly $3000 of alphabet shares, the share price will fall to about $150, greatly reducing the investment threshold of investors.
Benefiting from the stock split plan and stronger than expected performance, alphabet rose by more than 8% after hours.
2. Let’s focus on the issues concerned by the market:
(1) in the fourth quarter, Microsoft’s search advertising exceeded expectations. Will Google continue to benefit from Apple ios14 in the third quarter 5. The new privacy deal also achieved better than expected performance?
Yes. In the fourth quarter, Google’s search advertising increased by 35% year-on-year, realizing a revenue of US $43.3 billion. The old tree blossomed and won the first place in the advertising business.
In addition to relatively benefiting from Apple’s new privacy policy, the strong recovery of tourism, one of the core customers of search advertising, is also expected to drive the increase of tourism advertising. The agency predicts that tourism advertising will increase by 47% in 2022. Therefore, dolphin Jun expects Google to be more resilient than its peers in 2022, when it is difficult to avoid a significant decline in growth.
(2) other advertising growth? At the time of tiktok’s massive expansion, does it have a great impact on the star platform YouTube?
YouTube performed poorly, and its growth rate continued to decline sharply. Its revenue in the fourth quarter was $8.6 billion, an increase of 25% year-on-year. Dolphin Jun believes that the reasons for the slowdown, in addition to peer competition, the unsustainable rise in CPM and the resumption of offline activities in the post epidemic period may have an impact on the realization of Youtube. Pay attention to the YouTube user indicators in the management conference call.
(3) although the revenue growth rate of Google cloud in the third quarter was not low (a year-on-year increase of 45%), it was the only one among the three giants of global cloud services (AWS, azure and Google cloud) whose growth rate decreased month on month, and the amount of new contracts also decreased month on month. Can Google cloud’s restructuring in the fourth quarter usher in a turnaround?
It worked. In the fourth quarter, Google cloud realized a revenue of 5.5 billion, a year-on-year increase of 45%, and the chain comparison accelerated. This achievement was achieved when the new contract amount decreased month on month in the third quarter, which shows that the scale of new contracts in the fourth quarter should still be considerable (according to the management of the telephone conference just now, the unconfirmed contract amount increased by 70% year-on-year). Since the fourth quarter, many industry leaders have chosen to cooperate with Google cloud, such as Siemens energy, Chicago Mercantile Exchange, Intel, Qualcomm and so on. The company’s wave of personnel adjustment and restructuring of the cloud service department at the beginning of this year also indicates that the management attaches great importance to the cloud business.
As the second growth curve recognized by the market, although Google cloud ranks third in the world, the gap with its eldest brother is also obvious, and the loss rate of Google cloud is further increasing in the fourth quarter.
The growth and profit inflection point of Google cloud will become more and more important for the company in the future after the advertising gets out of the epidemic disturbance and gradually returns to steady-state growth, and the video trend bonus period of YouTube gradually passes.
(4) other points worthy of attention?
In the fourth quarter, the company announced that it would carry out the stock split plan of “1 to 20”, and the stock split is expected to be completed on July 15. Dolphin King believes that the investment attraction of US stock giants has always been prosperous, and their strong business ability and gold absorption ability make the market covet. Therefore, reducing the investment threshold of giant stock split will also help to attract more investors. Dolphin Jun believes that the positive signal released by the stock split plan will be more popular in the market compared with the strong performance.
long bridge dolphin King View:
Since the beginning of last year, Google has always been a high-quality US stock recommended by dolphin king in view of the repair expectation of search advertising and the video trend dividend of youtube, but Google’s performance exceeding expectations again and again is constantly refreshing our valuation expectation for it. (review “the flood is coming, do Google, Facebook and Amazon still have the second half?”
A big Mac with a revenue of US $75 billion and a profit of US $20 billion in a single quarter, its excellent business ability and continuous investment and innovation in emerging technologies will promote it to be on the road of global expansion.
Details of this financial report
Alpha, the parent company of Google, has a wide range of businesses, and its financial reporting structure has changed many times. Small partners who are not familiar with alpha can take a look at its business structure first.
Overall search performance is still the best
First, look at the overall performance of alphabet. In the fourth quarter, the company achieved a total revenue of 75.3 billion, a year-on-year increase of 32%, far exceeding the 27% expected by the market.
Data source: Google financial report, Longbridge dolphin investment research
From the growth rate of various businesses:
1) search advertising continues to benefit from the impact of Apple’s new IOS privacy policy on effect advertising, and its product portfolio (search, maps, discover, YouTube) is a good player who can drive users from discovery to order transaction. Whether it is online e-commerce or Omni channel ( Wuxi Online Offline Communication Information Technology Co.Ltd(300959) ) retail merchants, a set of marketing methods are handy.
In addition, the advertising business may also be driven by the strong repair of tourism, automobile and other industries. The agency predicts that the tourism industry will accelerate the recovery in 2022 with the control of the epidemic and the lifting of blockades in various countries, and the tourism advertising is expected to usher in a year-on-year growth rate of 47%. Tourism is an important source of revenue for Google Advertising, especially search advertising.
2) although Google cloud business also increased by nearly 45% in the last quarter, the growth rate slowed significantly compared with the second quarter. In the face of the accelerated growth of AWS and azure, it is obviously difficult to satisfy the market. However, in the fourth quarter, with the high attention of the management, Google cloud continued to open source and achieved a good result.
Data source: Google financial report, Longbridge dolphin investment research
The overall performance of the profit side is basically in line with market expectations, but the absolute value is driven by higher than expected income, and the final result is still gratifying to investors.
In the fourth quarter, the operating profit was US $21.9 billion, a year-on-year increase of 40%, and the operating profit margin decreased by 3 percentage points month on month, which was basically in line with market expectations. In the fourth quarter, although the costs and expenses increased significantly month on month, dolphin Jun believes that from Google’s history, seasonal fluctuations often occur, and the fluctuation range is not large. From the perspective of lengthening the cycle, the profit margin is still in the positive climbing direction, so there is no need to worry too much.
Data source: Google financial report, Longbridge dolphin investment research
Data source: Google financial report, Longbridge dolphin investment research
In terms of core cost, the flow cost rate has increased, but it is controllable as a whole.
Data source: Google financial report, Longbridge dolphin investment research
II. Advertising: search is king and its toughness is amazing
In the fourth quarter, Google achieved a total advertising revenue of $61.2 billion, a year-on-year increase of 33%. Although affected by the high base and the overall environment, the slowdown in growth is the consensus of the market, Google’s performance still exceeded market expectations.
Data source: Google financial report, Longbridge dolphin investment research
Since the performance express does not disclose the indicators of advertising unit price and delivery volume (the complete report will be disclosed, and the data in the figure below will be as of the third quarter of 2021), but if you refer to Cowen’s expert research:
\u3000\u3000a。 Search advertising: CPC is expected to increase by 18%, down from 25% in the previous quarter, and the number of hits increased by 11%, up from 8% in the previous quarter.
B. YouTube & Alliance advertising: CPM is expected to increase by 8% (vs. 14% in the previous quarter), and the delivery volume is expected to increase by 27% (vs. 25% in the previous quarter).
Dolphin Jun expects that after the fourth quarter, the growth of Google Advertising will be gradually driven by more “volume”.
Data source: Google financial report, Longbridge dolphin investment research
Data source: Google financial report, Longbridge dolphin investment research
From different types of advertisements:
(1) this time, the top brand is still won by the search advertisement. From Microsoft’s financial report last week, Bing’s search advertising exceeded expectations, which basically predicted that Google’s search business performance should also be quite good. As dolphin Jun said in “Apple pulls out its knife, is Facebook the first giant to see blood?” As well as the comments on the last quarter’s financial report, Apple’s new IOS privacy policy will weaken the ROI of effective advertising, the impact of advertisers’ budget transfer, as well as the strong repair of the core customer – the tourism industry, and the repair bonus of search advertising will continue. In the fourth quarter, search advertising increased by 36% year-on-year. Although the growth rate fell month on month, its toughness was amazing.
In Cowen’s market research, advertisers began to realize the high ROI of Google search advertising, and in the questionnaire of “after the impact on IOS privacy policy, what platform do you plan to allocate advertising budget to”, Google search topped the list, followed by Youtube, and the beneficiaries directly pointed to Google.
Source: Cowen
(2) however, YouTube’s performance in the fourth quarter was still not brilliant, with a year-on-year growth rate of 25%. Although YouTube has a global monthly life of 2 billion and 15 billion views a day, benefiting from the trend of video, and indeed seizing many users of INS, compared with the performance of search advertising, YouTube’s growth rate can not match its market popularity. Dolphin Jun speculated that emerging platforms such as tiktok and reels after holding ins (Facebook management revealed that reels had become the main source of user growth in the last quarter) posed many competitive threats to them, and the epidemic dividend gradually subsided in the gradual recovery of offline economy.
Data source: Google financial report, Longbridge dolphin investment research
III. Google cloud: business adjustment + personnel reorganization, and the old three are struggling to catch up with
In the fourth quarter, the cloud business revenue was 5.54 billion, a year-on-year increase of 44.6%, and the growth rate did not slow down, which can be regarded as a reassurance to the market.
Data source: Google financial report, Longbridge dolphin investment research
In the last quarter, Google cloud performed the worst among the three giants. AWS and azure accelerated their growth, and only Google cloud experienced a decline in month on month growth. In addition, after the peak period in the second half of 2020, the new contract amount of Google cloud has gradually subsided since last year, and the new contract amount decreased month on month in the third quarter.
Although the new contract amount was not disclosed in the performance express, the management revealed that the unconfirmed contract amount of Google cloud reached US $51 billion at the end of the fourth quarter. Of course, we can also guess from this revenue performance and the new customers signed by Google cloud since the fourth quarter (siemens energy, Wendy international fast food, Intel, Chicago Mercantile Exchange, Qualcomm, magic leap, etc.). The scale of the new contract is obviously very good.
Data source: Google financial report, Longbridge dolphin investment research
Data source: Google financial report, Longbridge dolphin investment research
However, the profit margin of cloud services in the fourth quarter further deteriorated on the basis of the improvement stopped in the previous quarter, and the loss rate rose to 16%. In combination with UBS’s market research, dolphin Jun speculated that the possible reasons for the increase in losses include substantial sales discounts, high expenses during the peak period of customer expansion, etc. Investors are advised to pay attention to the management’s answer to this question in the follow-up telephone conference.
Data source: Google financial report, Longbridge dolphin investment research
In terms of cloud business development, Google has always lagged behind Amazon and Microsoft (according to synergy, Amazon accounts for 33%, Microsoft 20% and Google 10%), and its revenue scale is not of the same order of magnitude, and it has not yet achieved profitability.
Compared with the two big brothers, the core advantage of Google cloud lies in the technology deployment of machine learning and network security. In addition, Google cloud can also be tied with other Internet products of Google, so as to increase the scale of revenue.
However, when AWS and azure can also achieve 40% – 50% growth every quarter, it is particularly difficult for Google cloud to catch up. In the fourth quarter, Google restructured its cloud business department, involving many personnel adjustments at the middle and senior levels. From the perspective of management’s strategic deployment, the investment in cloud business will continue to increase in the future.
IV. innovative business: the growth has slowed down significantly, and there is still uncertainty in the future
As the innovative business with the smallest proportion, it has been regarded by Google as an investment in front-end technology in the future and has no performance requirements. In the past performance, the growth also belongs to irregular band changes. In the short and medium term, investors do not need to pay too much attention.
Data source: Google financial report, Longbridge dolphin investment research
Note: since the business operation details are not disclosed in Google’s performance briefing, the content of the telephone meeting is particularly important. Friends interested in Google can add groups to obtain the follow-up telephone meeting minutes.
