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Google Parent Alphabet Smashed Wall Street's Earnings Targets, Shares Rise

By Anders Bylund - Updated Feb 2, 2021 at 5:47PM

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Consumers flocked to Google Search and YouTube services by the metaphorical boatload in this holiday quarter.

Technology giant Alphabet (GOOG -1.29%) (GOOGL -1.34%) reported fourth-quarter results after the closing bell on Tuesday, Feb. 2. The Google parent beat Wall Street's expectations by a wide margin. Share prices rose by approximately 8% in the early after-hours trading session.

Alphabet's fourth quarter, by the numbers

Alphabet's fourth-quarter revenues rose 23.5% year over year to $56.9 billion, led by a 47% jump in Google Cloud sales. Adjusted earnings increased by 45% to $22.30 per diluted share. Your average Wall Street analyst would have settled for earnings near $15.99 per share on top-line sales of roughly $53.2 billion.

An office worker uses a laptop, a smartphone, and a tablet computer at the same time.

Image source: Getty Images.

CFO Ruth Porat said that the revenue surprise rested chiefly on high consumer activity on Google Search and YouTube. Google Cloud's large revenue increase was in line with management's expectations, having been accelerated by a global shift toward remote work and cloud-based software solutions during the pandemic.

Accounting changes

The company also reviewed its accounting policies related to the useful life of server systems and networking hardware, reaching the conclusion that most of its computing assets should have a useful life of four years instead of three. Some network assets will now be amortized over five years instead of three, reflecting an even longer period of useful life.

These accounting changes will take effect at the start of fiscal year 2021 and should lift Alphabet's operating profits by approximately $2.1 billion in this full fiscal year. To put that figure in perspective, Alphabet's operating profits added up to $41.2 billion in 2020.

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