Alphabet is the best boy in the Big Tech class

Alphabet is the best boy in the Big Tech class

07 September 2021Reading time: 3 minutes

Alphabet's total revenue for the second quarter of 2021 rose 62 percent year-on-year to USD 61.9 billion. About 80 percent of the revenue came from advertising sales. While companies were still cautious about ad spend in the second quarter of 2020, that effect was more than offset this year. As a result of the global lockdown, many more consumers are shopping online and YouTube is also an important form of entertainment for people. Alphabet benefited from this, with a 69 percent year-on-year increase in advertising revenue. The remaining revenue came from other Google services and Google Cloud. Alphabet's second quarter operating revenues were USD 19.4 billion on an operating margin of 31 percent, an improvement of 14 percentage points year on year. Net profit exploded, rising 166.2 percent year-on-year to USD 18.5 billion. This resulted in earnings per share of USD 27.26.

Could stricter privacy rules affect Alphabet?

Still, there are also some concerns about Alphabet's future ad revenue. For example, Apple recently tightened its privacy rules for advertisements. This could mean that Alphabet can collect less user data and thus advertising for companies becomes less attractive. In the past quarter, Google and YouTube do not seem to have been affected yet by these new privacy rules. Analysts do not expect any major problems in the future either. Because print advertisements are disappearing and online shopping has taken off, partly due to the corona crisis, online advertising will continue to be important for companies.

Another development that could initially have major consequences for both Alphabet and its shareholders is an indictment by the US Department of Justice against Google. The latter is accused of an illegal monopoly position in the field of advertising in the search engines. This could be the largest US government lawsuit against a tech company ever. While Google is expected to oppose the charges, one scenario could include Alphabet having to split its business units. This is not necessarily a disadvantage for shareholders, if it turns out that the disconnected parts prove to be worth more individually than as a whole. For now the outcome of this lawsuit remains uncertain.

Stock price development Alphabet

Alphabet's share price has risen by 73.7 percent year on year and is now (27.08.2021) at USD 2,828.80. While one would expect that this would end the momentum for investors to jump in, analysts believe the stock is still undervalued.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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08/12/2021 17:50:46