Alphabet’s Google sign outside its office in Beijing, China. Picture: THOMAS PETER/REUTERS
Alphabet’s Google sign outside its office in Beijing, China. Picture: THOMAS PETER/REUTERS

Alphabet  is within striking distance of reaching a $2-trillion valuation for the first time after a strong earnings report sent its shares soaring. 

The Google-parent’s shares rose to a record on Wednesday with an advance of as much as 6.7%. The gains added more than $110bn to Alphabet’s market valuation, which now stands at about $1.97-trillion, according to Bloomberg data. 

The Mountain View, California-based company would become the third US company to reach the $2-trillion mark, joining Apple  and Microsoft. Oil giant Saudi Aramco also has a valuation in excess of $2-trillion. Amazon.com, the next biggest US company, has a market capitalisation of $1.74-trillion.  

The stock has now gained 69% this year, trouncing the performance of the other four biggest US technology companies, which also includes Facebook.

On Tuesday, Alphabet  reported quarterly sales that topped Wall Street estimates, reflecting robust advertiser spending, but disappointing results from its YouTube and cloud-computing divisions weighed on the stock.

Third-quarter revenue, excluding payments to distribution partners, was about $53.6bn, the company said in a statement. Analysts projected $52.6bn, according to data compiled by Bloomberg. YouTube ad revenue and Google Cloud sales both fell short of analysts’ estimates, driving the shares down more than 1% in extended trading. 

CEO Sundar Pichai has tried to keep Alphabet’s revenue engine chugging along by prioritising three areas: e-commerce, YouTube and cloud computing. That helped the internet giant rebound from a dour 2020, when some marketers pared their budgets as they coped with the initial shock of the Covid-19 pandemic.

Still, the company’s fortunes remain highly dependent on macroeconomic factors, including supply-chain doldrums that have plagued nearly every industry and could bite retailers and ad companies during the holiday-shopping season. The company also has been let down by its video platform YouTube and its cloud arm, both of which are meant to help it diversify away from the core search engine that brings in most of its revenue.

CFO Ruth Porat said on a conference call that Apple’s anti-tracking app privacy features had a “modest impact on YouTube’s revenues” in the quarter.

Alphabet’s profit was $27.99 a share in the third quarter, beating the average estimate of $23.50. But YouTube ad revenue came in at just $7.2bn. Analysts were looking for the world’s most popular video-sharing site to generate about $7.5bn.

Sales from the company’s cloud division rose to $4.99bn, missing Wall Street expectations of $5.04bn. While the unit has gained some market share under Thomas Kurian, it still lags far behind leaders Amazon Web Services and Microsoft.

Alphabet also repurchased $12.6bn in shares last quarter, and said it had added nearly 18,000 full-time staff during the period, up to 150,028. 

Search and other related businesses generated fiscal third-quarter sales of $37.9bn. Analysts, on average, estimated $36.7 billion.

“They are benefiting still from some of the commerce moving online because of the pandemic,” Mark Ballard, a researcher at marketing performance firm Tinuiti, said in an interview ahead of the results.

Google recently launched its line of Pixel 6 smartphones, which it hopes will help the company break out in the competitive consumer-electronics market. But Porat said that like others, it’s also dealing with supply-chain issues. 

“We’ve been risk-managing the supply-chain challenges well,” Porat said. “We are working closely with suppliers and logistics partners to plan and pivot when and where we need. With the strong reviews and demand on the Pixel 6, we do expect some supply constraints.”

Bloomberg News. More stories like this are available on bloomberg.com

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