Alphabet's Earnings Spell Success

On Wednesday, Alphabet Inc. (GOOG, Financial)(GOOGL, Financial) announced strong results for the fourth quarter and full fiscal year ended Dec. 31, 2021. It also surprised Wall Street by announcing an upcoming 20-for-1 stock split.

Google's parent company reported fourth-quarter sales of $75.3 billion, up 32% year over year, with earnings of $30.69 per share. The company’s market cap topped $2 trillion early in the day, as shares swelled by over 8% on the positive news.

At the market session’s close on Wednesday, the stock price sat at $2,960.73, a gain of $203.16 per share, or 7.37%. After hours, the share price receded to $2,910.03, a dip of 1.71%.

Ruth Porat, the chief financial officer of Alphabet and Google, said in a statement:

“Our fourth quarter revenues of $75 billion, up 32% year over year, reflected broad-based strength in advertiser spend and strong consumer online activity, as well as substantial ongoing revenue growth from Google Cloud. Our investments have helped us drive this growth by delivering the services that people, our partners and businesses need, and we continue to invest in long-term opportunities.”

Sundar Pichai, the CEO, added:

“Our deep investment in AI technologies continues to drive extraordinary and helpful experiences for people and businesses across our most important products. Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continuing to grow strongly.”

The Mountain View, California-based company also revealed that the board of directors had approved and declared a 20-for-1 stock split in the form of a one-time special stock dividend on each share of the Company’s Class A, Class B and Class C stock. It remains subject to stockholder approval of an amendment to Alphabet’s amended and restated certificate of incorporation to increase the number of authorized shares of Class A, Class B and Class C stock..

The split comes in the wake of Alphabet’s share price rocketing by over 65% over the last year, pushing it past the $3,000 evel at one point. Its stock price will fall to about $148 per share based on the current stock price when the split takes place,.

If approved, the company said, each of its stockholders of record at the close of business on July 1, 2022 will receive, after the close of business on July 15, 2022, a dividend of 19 additional shares of the same class of stock for every share held by such stockholder as of the record date.

David Wagner, a portfolio manager and equity analyst for Aptus Capital Advisors, emphasized the importance of the stock split. “We all know that does not increase the fundamental value of a company. But from what we’ve seen in the market with Tesla (TSLA, Financial) and Nvidia (NVDA, Financial), people like to chase stock splits, for some reason.”

Stock prices for the most valuable companies “have soared in the past two years, driven by pandemic-led shifts in how people work and learn, even as regulators around the world scrutinize them over allegations of breaches of privacy and antitrust concerns,” said Reuters. “At least 20 brokerages raised their price targets on Alphabet's stock after the company late on Tuesday delivered record quarterly sales that topped expectations. The median analyst price target is now $3,450, 16% above its current price.”