POV: Alphabet and Amazon Q4 2020 Earnings

Background:

Alphabet and Amazon are the latest big tech companies to release their Q4 2020 earnings, with more record breaking results from Amazon. Here are some of the highlights.

Details and Implications:

Amazon: Another record breaking quarter for Amazon with the company delivering its largest quarterly revenues of all time at $125.56bn, up 40% YoY and topping $100bn for the first time. It was driven by consumers flocking to the e-commerce platform over the holiday shopping period, with commerce sales also boosted by Prime Day that shifted to October from earlier in 2020. Revenues for its cloud unit Amazon Web Services (AWS) grew 28% to $12.7bn, slightly short of analyst expectations. Amazon’s ‘other’ category that includes its advertising business reported revenues of $7.9bn a 64% increase YoY, due to a resurgence in advertising spend and Prime Day.

However, the news that overshadowed everything, was the announcement that founder Jeff Bezos will be stepping down as CEO and will be succeeded by Andy Jassy, who set up and runs Amazon’s cloud services division, AWS. The unit has seen revenues grow 37% in 2019 and almost 30% in 2020.

Alphabet: Google’s parent Alphabet beat analyst expectations reporting overall revenues of $56.9bn, a 23% YoY increase, with advertising revenue up nearly 22% to $46.2bn. Of this, YouTube saw a 46% growth YoY to $6.89bn in advertising revenues – much of this growth from direct response ads. YouTube also saw an increase in viewers and time spent viewing. Philipp Schindler, Google’s Chief Business Officer said: “we now reach more eighteen to forty-nine year olds than all linear TV networks combined and more than one hundred million people stream YouTube from their television sets”. For the first time the company broke out operating results for Google’s cloud business (cloud computing services and Google Workspace) revealing that revenues were $3.81bn, up 47% YoY, however it had an operating loss of $1.24bn in Q4 and a loss of $5.61bn for the full year.

Summary:

Alphabet’s earnings revealed a bounceback for Google’s advertising business that, like others, saw a Q2 slump due to the pandemic. However, Alphabet is fighting to better compete for market share with its cloud business with Microsoft and Amazon‘s AWS, the market leaders.

Despite market and industry concerns that core revenue for Google might start to drop, Google continues to show strong growth in every aspect of ad revenue, pointing to continued success with the model and appealing to small / commerce-focused business and large brand advertisers.

It was another blockbuster performance from Amazon’s commerce business but also strong AWS growth, which helped the business generate more than $100bn in revenue, joining Apple, which also crossed that milestone in its earnings last week. Soon to be CEO Andy Jassy’s background in steering AWS shows just how top of mind those services are going to be for Amazon’s future business strategy. Going forward, it’ll be interesting to see how that affects its strategy and balancing that priority with a growing ad business and the commerce behemoth.

As for Bezos, whilst he has begun to build cloud services into a serious proposition for Amazon, his stepping back from the day to day of the Amazon business means he’ll have more time to devote to reaching beyond the clouds, maybe into space with Blue Origin or broadening the horizons for Amazon itself – it wouldn’t be surprising to see Amazon looking to diversify its business into other areas in the near future and it has plenty of cash to do it either organically or by acquisition.

Further Reading:

Alphabet | CNBC | Amazon | CNBC (Amazon)