03 February 2021

Alphabet Shares Spike on Upbeat Q4 Results

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News shaping
the markets today

     

What’s happening: Shares of Google’s parent Alphabet Inc rose sharply higher in extended trading on Tuesday after the tech giant crushed Wall Street's expectations for the fourth quarter.

What happened: Google, which enjoys the lion’s share of the internet advertising market, benefited significantly from pandemic-led lockdowns.

Although Alphabet reported an upbeat print, there were certain aspects of the results that raised significant investor concern.

How were the results: The search giant reported strong growth in both sales and earnings for the fourth quarter, with both metrics exceeding market estimates.

  • Revenues grew to $56.9 billion, from $46.08 billion in the same quarter last year, easily beating market views of $52.67 billion.
  • Net income came in at $15.23 billion, or $22.30 per share, up significantly from $10.67 billion, or $15.35 per share, in the year-ago quarter. The figure surpassed the consensus estimate of $15.71 a share.

Why it matters: Governments around the world announced lockdowns to curb the spread of covid-19. Although the restrictions resulted in the travel and entertainment industries cutting back their ad spend, Google’s revenues were boosted by various retail companies scurrying to go online and expand their digital presence.

Google's ad revenue, including that generated by YouTube, represented 81% of the company’s overall quarterly sales. Ad revenues climbed 23% year-over-year in the fourth quarter.

Despite the blowout quarter, the company’s full-year sales growth of 13% was the slowest since 2009. Moreover, there were concerns around the Google Cloud segment, which recorded an operating loss of $1.24 billion for the fourth quarter and of $5.6 billion for 2020. Management expressed their optimism, however, around an uptick in this business with the rollout of covid-19 vaccines,

Investors were also concerned about a decline in the company’s share of the global digital ad market due to stiff competition from Amazon and the rapid growth of Alibaba.

How shares responded: Shares of Alphabet jumped a whopping 7.6% to $2,064.46 in after-hours trading following the release of quarterly results. The stock could hit another new 52-week high after the markets open today. Alphabet’s shares have added more than 18% over the past three months.

What to watch: Markets will monitor Amazon’s results, which were reported after the closing bell on Tuesday. Investors will also keep an eye on the regulatory battles that Google is fighting, with antitrust investigations in various countries in Asia, Europe, Australia, and North America. Under the new US President Joe Biden, there could also be some revisions to data privacy laws.

The Markets Today

     

US stocks will be in focus today ahead of various earnings reports and economic data scheduled for release during the day.

Context: Wall Street recorded sharp gains on Tuesday, adding to a strong rally in the earlier session. Markets also witnessed signs of easing of the speculative retail trading mania since last week.

Details: The surge on Wall Street coincided with a sharp downturn in GameStop’s shares, which had spiked amid heightened volatility last week. GameStop’s shares had climbed around 400% last week led by conversations among retail investors on social media. The stock plummeted 30% on Monday and declined another 60% Tuesday. The videogame company’s stock has now lost more than half of its value in just two sessions.

Speculative trading in other assets, driven by Reddit chats, also eased. Shares of AMC Entertainment tumbled more than 41% on Tuesday, while silver futures, which had recorded their strongest single day gain in eleven years on Monday, also fell around 10% yesterday.

The decline in these assets was considered as a sign of the speculative mania unwinding, which may prove healthy for the overall markets. Meanwhile, investors continued to monitor stimulus talks in Washington, after congressional Republicans made a smaller counteroffer to the US President Joe Biden’s proposed rescue package of $1.9 trillion.

The Dow Jones index surged around 476 points to close at 30,687.48 on Tuesday, while the S&P 500 added 1.39% to reach 3,826.31 after recording its strongest session since November on Monday. The tech-heavy Nasdaq 100 spiked another 1.56% to settle at 13,456.12 on Tuesday, building gains from the earlier session.

What to watch: Markets await a basket of economic data from the US, including ADP employment, services PMI, composite PMI and ISM non-manufacturing PMI. Private businesses in the US are likely to add 49,000 jobs in January, after laying off 123,000 workers in December. The IHS Markit US Services PMI is expected to increase to 57.5 in January, while composite PMI is projected to climb to 58. A decline is anticipated in the ISM non-manufacturing PMI to 56.8 in January, from 57.2 in December.

Another batch of major corporate earnings will be released today, which will remain in focus.

Rising covid-19 cases remain a top concern for markets, with total infections surpassing 26.4 million in the US.

Other Markets: European trading indices closed higher on Tuesday, with the FTSE 100, German DAX 30 and French 40 up by 0.78%, 1.56% and 1.86%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s inflation rate and producer prices, South Africa’s IHS Markit PMI, Spain’s foreign tourist arrivals and services PMI, Italy’s services PMI, composite PMI and consumer prices, France’s services PMI and composite PMI, Germany’s services PMI and composite PMI, Eurozone’s services PMI, composite PMI, producer prices, consumer prices and ECB non-monetary policy meeting, UK services PMI and composite PMI, Mexico’s foreign exchange reserves, Russia's gross domestic, Brazil’s services PMI and composite PMI as well as the US MBA mortgage applications and EIA’s crude oil inventories.

 

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