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Why Alphabet Soared by 65.3% in 2021

By Royston Yang – Jan 10, 2022 at 10:07AM

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The parent company of Google benefited from a surge in online activity caused by the pandemic.

What happened

Shares of Alphabet (GOOGL -0.15%) (GOOG -0.19%) soared by 65.3% in 2021, according to data provided by S&P Global Market Intelligence.

The Nasdaq Composite index gained 22.2% last year by comparison, so Alphabet's stock surge was nearly triple the magnitude of the rise of the technology-heavy index. Alphabet is the parent company of Google, one of the most used internet search engines in the world. Alphabet also owns video-sharing site YouTube and operates a cloud service called Google Cloud.

Digital clouds raining ones and zeros.

Image source: Getty Images.

So what

Alphabet was a beneficiary of the sharp surge in internet usage caused by the pandemic. As more people headed online to transact or telecommute, Alphabet enjoyed increased usage of all its services from the cloud to video streaming. The company's numbers bear this out -- revenue for the first nine months of 2021 jumped by 45.1% year over year to $182.3 billion, while net income surged by 121.2% year over year to $55.4 billion. Free cash flow also improved from $25.6 billion in the prior year to $48.5 billion.

This growth was catalyzed by a digital shift that looks set to stay. With more businesses prepared to adopt hybrid work practices and more people choosing to work flexibly, Alphabet should see steady, rising demand for all its products and services.

Now what

The company has been busy expanding its cloud network to even more regions around the world. Last year, the Google Cloud platform entered new cities such as Warsaw, Poland; Melbourne, Australia; and Toronto, Canada. There are plans to extend its presence into Chile, Israel, Germany, and Saudi Arabia in the coming months. In 2022, Google Cloud will also add North American regions such as Columbus, Ohio, and Dallas, Texas.

Google also promises new features in 2022 such as seamless pairing, device switching, and smoother integration with a Windows PC to Android and Chrome operating systems. These new enhancements promise to sync devices and enable them to run more seamlessly.

There's also good news for Alphabet's YouTube. YouTube TV recently reached a deal with Walt Disney to restore content from Disney channels such as National Geographic and ESPN after an initial impasse. This restoration should appease users who faced disruptions to their viewing and YouTube will provide a one-time $15 credit to users who resume their memberships.

Alphabet appears to be firing on all cylinders as it latches on to these favorable tailwinds. While its 2021 gain was indeed impressive and will be hard to replicate this year, investors can rest assured that the $1.8 trillion company can still grow its top and bottom lines at a comfortable pace.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Royston Yang owns Alphabet (A shares). The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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